Who administers the trust?
When setting up a trust, you should name a corporate trustee who knows what’s allowable without disqualifying the child. And if the trustee makes a mistake, you can sue.
Uncle Bob may be a great guy, who wants what’s best for the child, but he probably doesn’t know the Medicaid laws or how to manage the money so that there’s enough income generated to support that child’s lifestyle. The laws are constantly changing and the government is always trying to close as many loopholes as possible, so it really needs to be done by the book. If you’re using an adviser who doesn’t specialize in this area, he or she could miss something, which could then jeopardize the entire estate plan.
That’s why financial planning needs to be done with reviews on a semi-annual basis. Diagnoses change, family dynamics change, health changes, the environment changes, and the economy changes, all of which can have an impact on your plan.
What advice would you give a young business owner who is reluctant to tackle this issue?
You’re young and you’re healthy, but you can’t fight Father Time. You will get older. When do you think it makes sense to address it? When you’re older and your options are fewer? Or now, when you’re younger and healthy and you have more options to consider? Many people may not want to deal with it, but the situation will not go away.
What common mistakes do business owners make when planning for the distribution of their assets?
For example, a business owner has three children and wants to leave assets equally to the children, so he or she just splits the beneficiaries into thirds. But if one of those children has special needs, that can impact the growth of the business and the sustainability of the business, and create a family dynamic that may not be very desirable when you’re trying to manage a company.
Typically, we don’t advise people to leave a portion of the business to the child with special needs. If the business comprises the majority of your net worth, you may have to look at alternative funding sources to create a source of money for the care of the special needs child. In many cases, the way to do that is through life insurance with a policy on the business owner. An adviser can help you do an analysis to determine which solution makes the most sense for you.
Bernie Garrah is a financial adviser and Special Care Planner at Skylight Financial Group. Reach him at [email protected] or (216) 592-7360. The information provided herein is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any federal tax penalties. Entities or persons distributing this information are not authorized to give tax or legal advice. Individuals are encouraged to seek specific advice from their personal tax or legal counsel. Bernie Garrah is a registered representative of and offers securities, investment advisory and financial planning services through MML Investors Services, Inc. member SIPC. 1660 W. 2nd St. Ste 850, Cleveland, OH 44113, (216) 621-5680. CRN201208-138384
