With a desire to be fair to all of their children, parents will often plan to divide their estate among them, leaving an equal portion to each.
“But if one child has special needs, an equal division of assets can result in the loss of that child’s government benefits, such as Social Security Income and Medicaid,” says Bernie Garrah, a financial adviser and Special Care Planner at Skylight Financial Group. “Instead, parents should consider setting up a supplemental needs trust.”
However, if the parent is also a business owner, that can complicate things further.
“If you have a child with special needs, that child is most likely receiving government assistance,” says Garrah. “And if you don’t structure the inheritance properly, he or she could be disqualified from receiving aid.”
A supplemental needs trust allows a parent to leave unlimited assets to be used for the benefit of that child over his or her lifetime. Assets in the trust are not counted when considering qualification for government benefits and are intended to provide supplemental care beyond that provided by the government to enhance the quality of life.
Smart Business spoke with Garrah about how to structure a trust to care for a child with special needs without impacting government assistance.
Who should establish a supplemental needs trust?
Almost anyone with a child with special needs can benefit by setting up a trust to protect the future of the child.
There are a few instances in which it might not be necessary; for example, if the person leaving the assets doesn’t have much to leave and isn’t worried about funding the child’s future, or if the person is so wealthy that the interest earned on an investment portfolio is enough to maintain the child’s standard of living after the parent is gone.
However, for most, establishing a Special Needs Trust makes sense in order to take care of the child’s supplemental needs without endangering his or her government benefits.
What are the first steps to creating a trust?
The first step is to select advisers who specialize in the area of special needs. The accountant needs to be familiar with how to manage the tax return, the attorney has to be well versed in special needs planning, the investment person has to make sure that he or she is not recommending increasing the amount of assets in the child’s name without knowing the child’s diagnosis and prognosis, and the insurance agent has to know that he or she can’t just do a blanket beneficiary election form in which all of the children are named as contingent beneficiaries.
If you buy life insurance when you start a family and the child isn’t diagnosed as severely autistic until age three, you need to call your insurance agent to alter the beneficiary election of that policy. If you don’t, and you die, that becomes a problem for the child.
The right advisers can also steer you toward the most appropriate nonprofits for the child’s needs, whether it’s speech therapy or obtaining an adapted vehicle to allow that person to drive.
