Between doctor and specialist appointments—and, well, life—there seems little energy left to plan for your child’s financial future. Creating a trust for my daughter with special needs has been on my to-do list for years, and I feel guilty that this chore always gets pushed to the bottom of the pile. “Proper planning not only saves money but reduces stress,” says Fred Haiman of Haiman Hogue Attorneys in Frisco, who specializes in helping clients set up special needs trusts. “Not planning in the first place is a problem.”
Maggie Hodgson, who lives in Sachse, says she’s so glad she finally made a trust for her 24-year-old son with Down syndrome, even though managing the trust has added more to her already full plate. “You never know when you’re going to die,” she says. “It’s like setting up a will. It’s part of being a responsible parent.”
When your child becomes an adult, Medicaid will pay for some medical costs, but it will not cover additional items such as eyeglasses, dental work and rehabilitation services. Nor will it cover personal expenses like haircuts or a night out at the movies. A special needs trust can provide the financial support for these needed and wanted items—without disqualifying your child from public benefits such as Supplemental Security Income or Medicaid.
That’s why a regular savings account might not be good enough: Currently, a
person with special needs cannot have more than $2,000 in assets and still receive government aid. Mary Anne Mayer Redmond, a certified financial planner in Addison, explains that unlike a regular savings account, a trust does not count toward that $2,000 cap and so will not affect your child’s eligibility for benefits.
A trust also provides a way for your child to inherit without losing benefits. “There is nothing worse than seeing an individual lose government benefits because of outright inheritance of money,” Haiman says. But by naming the special needs trust, instead of your child, as beneficiary, you can ensure that your child’s benefits remain intact.
Types of Special Needs Trusts
Third-party special needs trust: This type of trust is funded by someone other than the beneficiary, such as a parent or grandparent.
Self-settled or first-party special needs trust: This type of trust is set up by a family member or the court, but funded by the beneficiary, perhaps through inheritance or a lawsuit. For example, if your child wins a legal settlement, he or she can put the money in a trust rather than own the money outright.
ABLE account: Signed into federal law in 2014, the Achieving a Better Life Experience (ABLE) program offers tax-free savings accounts that can be used to pay for disability-related expenses without affecting your child’s eligibility for government programs. ABLE is still in development in Texas, but programs in states including Oregon and Colorado are already up and running and will allow nonresidents to open accounts.
Who is Involved
Administering a special needs trust is complicated. The trustee—usually a parent, sibling or close friend—must have a clear understanding of government programs as well as the beneficiary’s needs to make sure the trust enhances, not hurts, his or her quality of life.
As Hodgson can attest, it takes a lot of work, on top of her other responsibilities. “None of this happens in a vacuum,” she says, which may be why many parents, like me, keep putting it off.
Luckily, we don’t have to make it a full-time job as long as we build a network of people to help. Your team should include an attorney, a financial adviser and family members who will be caring for your child. “Patience in the process of determining the right team is essential,” Mayer Redmond says. “You will work with this group of people to make many life decisions.”
Ask people in your network for recommendations or contact your county bar association and ask for a referral. Many attorneys will offer a free initial consultation. If you want to learn more before diving in, local nonprofits host workshops (see sidebar) to help you understand your options. In fact, the hardest part won’t be putting the team together, but just saying yes to beginning the process. “Parents get depleted,” Hodgson admits, “but I want to provide a quality life even after I am gone.”