The first thing we talked about was the difference between no will, a will, and a trust. With no will, the State will divide up your assets equally among your heirs. Generally this is what you would want, right? But what if you have a special needs child that would require more of an inheritance? The State does not have the means to determine such a necessity, and as such the benefit will not be passed on to the child that needs it most.
Next we have the will. With a will, you can designate a larger sum to go to your special needs child. Of course, this is seen as income for the child, which could therefore disqualify that child from any public Social Security benefits for which they would otherwise be eligible. So while your intentions are in the right place, it is not necessarily going to benefit the child if that child is unable to manage the funds during the disqualifying period.
Lastly, there is the Trust, specifically a Special or Supplemental Needs Trust. This allows you to provide supplemental support for your special needs child without disqualifying them for any benefits for which they are eligible. Some points to note regarding the Supplemental Needs Trust:
- Identify and understand the public benefits for which your child is or may be eligible.
- The Trust must be irrevocable, so it cannot be changed after it is created. Once you choose the assets, you lose control over them to the Trustee.
- Although irrevocable, you can draft it with enough flexibility to allow amendments for changes in laws, state of residence, etc.
- The child does not have the right to demand access to the assets of the Trust, meaning they can't decide to pull it all out and blow it in Vegas.
- Payments from the Trust for food and shelter will be treated as income for Supplemental Security Income purposes, and reduce the SSI benefit.
- Understand the implications of "in-kind" income, the "presumed value" rule and the "one-third reduction" rule for SSI beneficiaries.
- Do not make distributions of income directly to your child. When payments for food or shelter must be made by the Trust, the trustee should make the payments directly to the landlord, vendor, or other service provider.
- Payments for non-food or non-shelter items have no impact on SSI benefits. Therefore, to the extent possible, your child should use his or her SSI income for food and shelter expenses and the Trust should pay for non-food and non-shelter items.
- Distributions from the Trust can be considered as income for income tax purposes, but not as income for SSI purposes.
- Undistributed income is taxed at the compressed trust rate for complex trusts.
- Life Insurance purposed by the Trust on the life of an important caregiver for the child may be appropriate for advisable.
- Understand the SSI rules regarding housing expenses. Payments by the Trust for rent, a mortgage, real estate taxes, gas, electricity, water and sewer, garbage removal, property insurance required by a lender or condominium fees that include the above items will be considered as countable housing expenses by SSI and result in a reduction of the SSI benefit by one-third of the federal benefit rate, plus $20.00. Payments by the Trust for a telephone, cell phone, cable television, computer, Personal property insurance, paper products, repairs, capital improvements, staff salaries, laundry, and cleaning supplies are not countable housing expenses.
- It may actually be in your child's best interest to forego public funding or receive a reduced level of benefits.
- The trustee must keep appropriate records and adhere to traditional trust rules for investments, accountings, etc.
- You get to choose the trustee who may be one or more individuals or a corporate fiduciary, or both. It's also important to choose alternate trustees, as the trust can often outlive any one trustee (or beneficiary).
One huge benefit of a Trust is that it's possible to set it up so that family can contribute to the Trust. So any birthday or holiday money can be placed in the Trust for the long-term benefit of the child.
Of course, one thing that was brought up was the issue of Guardianship. Many special needs schools will tell parents that they need to get guardianship of their special needs child by the time they are 18, or they become Wards of the State. This is not true, and it's very scary to think that parents find this out the hard way.
While it is true that it is easier to get Guardianship of a special needs child before they are 18, it's possible to go through the process at any time, as long as the special needs child is represented by legal council. If one does not seek guardianship, the special needs child is not taken on as Wards of the State, but rather left to their own devices. It is highly recommended that Guardianship is sought for your incapacitated child before they are 18, because once they turn 18 the HIPA laws go into effect, and you have no control over your child's welfare or medical needs.
An alternative is Power of Attorney, where a child relinquishes the legal right to enter into contracts, and can extend to medical and other physical aspects of the care of the child. It does not, however, extend to financial welfare, which would then be covered by a Trust.
This was a very informative seminar, one that I was grateful to attend, particularly when permission to publish the handout material on my Blog was granted by Mr. Wiese. If you have any questions regarding the creation of a Trust or gaining Guardianship, feel free to schedule a meeting with a qualified attorney. Also keep in mind that while the amount of the Trust is not important, the cost of the process may be a bit steep. So contact a lawyer to find out how much it might be, and start saving. It is definitely worth it.
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