Providing for a loved one with special needs
Tuesday, 7 July 2020
If you are the parent of a child with special needs, you understand the importance of planning for the lifelong care of your child.
Because this type of planning can be very complex, you may wish to consider the counsel of experts, such as attorneys and ﬁnancial consultants, who specialize in this type of estate planning. It's also helpful to familiarize yourself with the options available to you before consulting a special needs planning professional.
Understanding the qualiﬁcations for government beneﬁts
When your special needs or disabled child turns 18, he or she may qualify for government beneﬁts, including Supplemental Security Income (SSI) and Medicaid. In order to qualify, your child cannot have more than $2,000 in assets.
Having a job can also impact his or her ability to qualify for these beneﬁts. With this in mind, it's advisable to carefully review the assets that are in your child's name that may aﬀect eligibility.
Establishing a special needs trust
A special needs trust can be used to preserve assets for your child's care while also keeping those assets out of his or her name. These assets are intended to supplement government beneﬁts and can be used to pay for expenses above and beyond the coverage provided by his or her beneﬁts.
There are speciﬁc rules governing the use of funds, depending on which of the three special needs trust is the best ﬁt. A ﬁrst-party trust is used to hold assets belonging to the special needs child, such as an inheritance. A pooled trust combines the funds of multiple disabled people for investment purposes. These are typically set up by a charitable organization, which will then distribute the funds to supplement the care of the trust participants.
Third-party special needs trusts are the most common. This type of trust holds assets belonging to other people — typically family members — that will be used for the individual's care over the years. A third-party trust can hold any kind of asset, including real estate and other investments.
You can set up the trust for your child while you are still alive, referred to as a living trust. You can also do so as part of your Last Will and Testament, which will be called a testamentary trust. The kind of trust you set up and how you will fund it should be based on your particular circumstances and your child's projected needs.
Funding a special needs trust
If you opt for a living trust, you can establish the trust and deposit assets in it over time. Setting up a third-party special needs trust would make it possible for other family members to contribute to the trust as well. You can set up a trust with any amount of money. Because there are expenses related to establishing and maintaining the trust, many experts recommend a minimum of $100,000 be used to set up the trust.
Another way to fund a trust is using life insurance proceeds. Many ﬁnancial consultants recommend using a '"second to die" life insurance policy that would pay out when the second parent passes away. The proceeds from this policy can go straight into the trust without having to go through probate.
Appointing a trustee
Serving as a trustee of a special needs trust requires an understanding of tax issues, investment requirements, reporting and more. It is common for a corporate trustee to be designated to administer special needs trusts.
Writing a letter of intent
Another important part of planning for your child's long-term future is writing a letter of intent. This document provides the trustee with details about your child's functional abilities, medical history, preferences, personality and your wishes for him or her after you are gone. It may also include details about your child's relationship with family members and caregivers, as well as your child's daily routine.
Planning for a lifetime
Planning for your child's long-term ﬁnancial security and care is a complex process. What's more, the laws governing trusts are always changing. Working closely with a special needs attorney, ﬁnancial consultant and other professionals can help ensure your child will have the resources they need for their lifetime.
The content provided is for informational purposes only. Neither BBVA USA, nor any of its affiliates, is providing legal, tax, or investment advice. You should consult your legal, tax, or financial consultant about your personal situation. Opinions expressed are those of the author(s) and do not necessarily represent the opinions of BBVA USA or any of its affiliates.
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