May 24, 2024


Liz Yoder, CFP®

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Navigating Financial Planning for Children with Special Needs

For parents of children with disabilities, estate planning takes on an added layer of complexity. It's essential to devise a strategy that enhances and optimizes assets for your child's benefit while ensuring they remain eligible for crucial public assistance programs.

Crafting a plan that addresses both these aspects involves meticulous planning. A skilled attorney and Special Needs Certified Financial PlannerTM can create a special needs trust, which serves to meet these dual objectives alongside any additional aims you envision for your child's future.

Understanding Special Needs Trusts

To be eligible for means-tested benefits like Supplemental Security Income (SSI) or Medicaid, beneficiaries must adhere to stringent financial requirements. A special needs trust is a strategic tool that can help your child comply with these requirements because the trust's assets are not directly accessible by the child.

This structure ensures a trustee, carefully chosen by the parents, manages the assets for the child's benefit. The appointed trustee essentially acts as the financial custodian, managing funds wisely on behalf of the child, especially in scenarios where the parents are no longer present.

Incorporating a letter of intent adds further clarity, guiding the trustee in decisions that align with the child’s best interests and specific needs. Learn more about our special needs financial planning services.

Selecting the Right Trustee

When it comes to selecting a trustee for the special needs trust, considering someone reliable and capable is vital. While family members are options, sometimes choosing an independent trustee--like an estate planning lawyer, Special Needs Certified Financial PlannerTM, trust company, or a non-profit with specialization in special needs--can be more prudent.

Each option presents its own set of advantages and potential pitfalls. It’s critical to discuss with a knowledgeable estate planner or financial advisor prior to making this decision.

Ideal Timing for Establishing a Special Needs Trust

You can set up a special needs trust either during your lifetime (a living trust) or upon your death. A living trust has several benefits, including avoiding probate, allowing for contributions from other family members, and providing a hands-on experience for a co-trustee in managing the trust.

Alternatively, the trust can be established through a will, known as a testamentary trust.

Trust Types and Tax Implications

Whether a trust is revocable or irrevocable has implications for taxation. Generally, revocable trusts offer the flexibility of modification and are preferred for maintaining control, without income tax concerns. On the other hand, irrevocable trusts, once established, cannot be amended and are often utilized for minimizing income tax implications, particularly for trust funds over $1 million due to potential estate and gift taxes.

Special needs trusts are typically irrevocable and can be categorized as either first-party or third-party, depending on the funding source. Assigning control to a trustee ensures your child’s eligibility for government benefits is not compromised while allowing for additional familial support that can enhance their life quality.

The Essential Role of Special Needs Trusts and Estate Planning

Merely voicing care instructions for your child to relatives is not sufficient. Without a legal will or trust, the state may end up dictating the distribution of your estate, an outcome that hardly serves the best interest of a child with special needs.

Securing competent legal and advice for crafting the right trusts within your estate plan is hence crucial for your child’s long-term welfare. Generic templates or DIY legal solutions are inadequate for the intricacies involved in special needs planning.

Given the stakes, seeking out a qualified attorney specializing in special needs estate planning is imperative. They can customize your estate plan to align with your desires and your child’s specific requirements, ensuring a future where vital public benefits like SSI and Medicaid are preserved through a special needs trust.

To ensure your child's financial and overall well-being, contact our special needs Certified Financial PlannersTM for help.

Contact Our Special Needs Certified Financial PlannersTM