When 1-year-old Trey underwent brain surgery in an attempt to squelch the painful and life-threatening seizures his body continually endured because of a stroke, his parents didn’t waver at the costly treatment plan. But nothing could have prepared the Dallas couple for the bills that stacked up after bringing their son home from the hospital.
Mom Heidi says, “We have about as good of medical insurance as you can find, but [we had no idea what recovery] after brain surgery costs.”
Parents of special-needs children know the expensive reality of caring for their child, and while the government does offer some assistance to families, it doesn’t take much to exhaust those funds, as well as your own personal finances and assets.
What most parents don’t know is that, as the child’s guardians, they can establish a place to store money especially earmarked for their child’s future and quality-of-life care—assets that won’t count against their child’s qualification for governmental assistance. Called a special-needs trust, or a supplemental trust, this financial vehicle can help pay for things like a music therapy program or a computer for a special-needs student. These trusts are intended to supplement (not supplant) the quality-of-life care for a special-needs child until that child reaches age 65.
WHY ESTABLISH A SPECIAL-NEEDS TRUST?
It all comes down to qualification for governmental assistance, and whether you foresee a future need for supplemental security income, vocational rehab, subsidized housing or even Medicaid benefits, explains Jeff Yates, an estate-planning attorney with Albin, Harrison, Roach in Plano.
Who qualifies for benefits, you ask? “A child receives government assistance when parents cannot provide the necessary therapy or medical care for their child,” explains Brian Hall, an attorney with Dallas law firm Barnett McNair Hall LLP. Government assistance is available for a variety of needs—eligibility is different for each program, so it’s best to consult with your attorney or read available data online at www.dshs.state.tx.us.
But whether your child is currently (or might someday be) eligible all depends upon the assets held in your child’s name, and, according to Keith Branyon, a North Texas attorney, “[Without a special-needs trust in place] any assets your child has over $2,000 will disqualify him for governmental benefits.”
Explains Hall, “The government would require that [all the inheritance] money be spent before it kicks in [to assist your special-needs child with] anything.”
Candice of Allen, mother of a child with cerebral palsy, shrugs off the need for governmental assistance or a special-needs trust. “We’ve got a sizable life-insurance policy, so I don’t think our daughter will be lacking,” she says.
But if you’re thinking that setting up a trust and qualifying for governmental assistance seem like notions at opposite ends of the economic spectrum, Nick Carroccio, Specialcare Planner at Nexus Advisors LLC in Dallas, puts it into perspective: “It’s not about how much you have, but how to … best utilize what you’ve got.”
Hall, who’s also the father of a special-needs child and the founder of A Child Can Do All Things, a nonprofit assisting kids with motor challenges, agrees. When planning for your child’s future, he says, it’s important to note that what might seem like an ample inheritance or settlement can quickly be siphoned. Additionally, the amount of money a person makes is immaterial to the “need” to have a trust. He says, “A [special-needs] trust is not just for the affluent.”
It’s more about covering your bases—or more to the point, your child’s bases.
Richard Garnett with The ARC of Texas (which advocates for people with intellectual and developmental disabilities) adds, “Even if you think you’re financially set, it’s at the very least a safety net for the ‘what ifs’ … In the same way you probably didn’t expect to have a child with special needs, you aren’t expecting [but it could happen] that you have a stroke, a car accident and aren’t able to provide for this child.” For example, “I met a [father of a special-needs child] making a ton of money and one afternoon he was working on his roof and fell off. A special-needs trust was critical for his child.”
The prerequisite for creating the trust could be incorporated into the will, so the trust is not created unless the child needs it. “Remember, a true special-needs trust is only necessary for a child receiving government assistance,” says Hall.
“It used to be that financially savvy parents would simply disinherit their special-needs child, leaving everything to a trusted sibling,” reveals Yates. “But that can be risky. Even if the sibling were to carry out the care in the manner you envision, the money could be subject to bankruptcy, divorce or a lawsuit.”
A special-needs trust, on the other hand, will allow your child to receive governmental help, if necessary—help with food, clothing, shelter and some medical care with added quality-of-life comfort in the form of speech or sensory therapies, for example—pretty much anything beyond his basic needs, according to Chris Oglesby, an attorney at The Arc of Texas. “Medicaid might cover expenses at a group home or assisted-living facility for your child,” he says, “but the special-needs trust can provide for transportation to participate in, say, Special Olympics, a favorite hobby or any comfort item.”
Garnett adds, “Getting on a wait list for any of the dozen or so governmental programs we work with, including services for the blind, autism, mental retardation … can take years and years. If the day comes and you don’t need the services, you can always say no thanks. But you must have the setup of a special-needs trust to fill out the paperwork. And you can set it up so it’s only active upon your death.”
So pretty much the moment you bring your baby home from the hospital, it’s time to add your name to any waiting lists for governmental assistance, advises Hall. Then, as soon as your child “owns” something—whether it be an award from a life insurance policy or a monetary gift from a grandparent (anything more than $2,000)—it’s time to establish a special-needs trust to ensure your child remains eligible for government assistance.
Moreover, it’s important to understand that you don’t have to die for your child to benefit from a special-needs trust. Heidi, who’s son Trey is undergoing speech and occupational therapy as well as attending a specialized school, says, “I was so thankful to find out about the Medically Dependent Children Program [provided by the state of Texas], which helps pick up [costs that] insurance doesn’t and provides services like 50 hours per week of respite care. It was a two-and-a-half-year wait list to get in [the program] and we had to have a special-needs trust set up [for our son to] qualify.”
If you’re uncertain whether your child might one day need or qualify for governmental benefits, it’s best to consult with an attorney, advises Lori Ashmore Peters, an attorney with The Ashmore Law Firm in Dallas. She says, “… especially with a special-needs child, you’re going to want to tackle this sooner rather than later and you need to do some kind of estate planning regardless.”
HOW TO DRAFT A SPECIAL-NEEDS TRUST
For the same reason you wouldn’t consult a dentist to have a look-see at your back pain, when establishing a trust for your child, you’ll want to hire an attorney who is well versed in special-needs trust law. In fact, with the variety of trusts (i.e. Family Living Trusts, Irrevocable Life Insurance Trusts, Crummy Property Trusts and Special Needs Trusts), some people may need more than one type of trust for their planning, says Hall.
“If ever there’s a time to steer clear of a preform Web source, this would be it,” adds Yates.
So when dealing with this level of complexity, it’s not a bad thing to educate yourself prior to meeting with a lawyer, but information is all you’ll want to depend on the Web for, and in the same fashion you would vet your child’s preschools, it’s also a smart idea to vet your lawyer.
“To verify that an attorney is knowledgeable in this area, check to see if they’re a member of the National Academy of Elder Law Attorneys, as the laws that govern elder care are the same as those that govern [those with] disabilities,” suggests Ogelsby.
The cost of a special-needs trust varies, so you should be able to find one to suit your budget. They can range from as little as $750 for a stand-alone special-needs trust to $1,500 and about $100 to add onto a preexisting will. Most attorneys offer free consultations, so it’s reasonable to consult a few to find the right fit.
Note: If you’re a grandparent planning to leave an inheritance for a special-needs child, as a concerned grandparent (or any interested third party), you can set one up. A special-needs trust doesn’t have to be set up by parents.
HOW TO FUND THE TRUST
While it’s critical to draft the special-needs trust with an experienced attorney, it’s equally important to consult an independent financial planner who is experienced in special-needs trusts when mapping out your finances and deciding how to fund your child’s trust.
And, “It’s especially important to have some guidance when you have more than one child and want to divide your assets,” says Ashmore.
A special-needs trust can be funded by a number of sources, including your family’s assets, a personal-injury or malpractice settlement or life-insurance policies. But Branyon advises caution when working with either an insurance planner or financial planner to fund your child’s trust because not all “experts” have the necessary state certifications—look for those certifications to ensure they understand the complexity of investing.
Ashmore also underscores the importance of making sure all 401Ks, property and any other source of funding for the trust lists the special-needs trust, not the child, as the beneficiary in order to avoid probate or disqualify your child from governmental assistance. There are infinite ways to slice and dice assets, and an estate planner knowledgeable about your specific family can properly guide you.
And, once you’ve set up the trust, it’s important to communicate to extended family and friends how it must be funded if they intend to help. “A well-meaning grandparent may donate even a modest sum of money to a special-needs child, and in doing so, disqualify [that child] from governmental benefits. If they leave something for your child, they need to list the name of his or her special-needs trust, not the child as the beneficiary,” stresses Hall.
Trey’s mom, Heidi, adds, “We set up a CaringBridge Web site to keep family and friends abreast of medical updates, and when we mentioned we’d established this trust, to our surprise, several friends wanted to help out.”
NAMING THE TRUST’S TRUSTEE
Like any trust (special-needs or otherwise), the person you select to manage the pursestrings may not be the most suitable person to care for your child and vise versa. “Your financial whiz brother may not have the patience to deal with an adult child who, say, lacks bowel control,” explains Hall.
You can divide those duties, but it’s critical for you to know, “If the trustee doesn’t know what they’re doing, they can be legally liable if they preclude the child from getting benefits. The government is looking over their shoulder for proper management of the trust,” Hall warns.
For this reason, some families decide to elect a bank or other corporate trustee for this task. But, Branyon cautions, “their fees can easily chip away at your funds, in which case, a pooled trust [see sidebar] may be more cost effective.”
Whatever path you choose, a good special-needs trust attorney will equip you with proper instructions.
“Most parents know they need to think about a guardian for minor children in the event the parents die, but many don’t know they also need to establish guardianship for a special-needs child who is unable to care for himself [even after] that child turns 18,” says Hall.
As with any guardian you select for any type of will or trust, you’ll want to sit down and have a heart-to-heart talk with them to see if they’re up for the task of taking on this responsibility. “I’ve had families list grandparents up until a certain year then pass the baton to a special-need child’s sibling once that sibling reaches a certain age. That can be stated in the special-needs trust … so that the family doesn’t have to make a special trip back to the attorney’s office to amend the trust,” says Yates.
“It’s also important to have ample alternates in place for such an important job of caring for a special-needs child. Understandably, you’re going to find more reluctance as this is often a lifelong commitment,” Yates adds.
Even after you’ve tackled this task, it’s a good idea to revisit it every year. Ashmore suggests, “Just put it on the calendar like you would your annual physical so you won’t forget. And establish [it] up front with those you name as trustee (if you choose an individual) or guardian to make sure they haven’t encountered life changes that might impact their obligation.”
Trustees and guardians will also need some guidance on the care of your child, which can be outlined in a letter of intent or advisement. These preferences aren’t legally binding, just a good idea to offer for the caregiver and trustee in determining how the money should be invested and spent.
It’s within this letter that you’ll list anything your child isn’t able to communicate on his own behalf, points out Carol of North Texas, a mother of an adult with Down syndrome whose daughter lives in an assisted-care home. “Certainly, any medical information should be included as well as favorite foods, an aversion to loud noises or a fondness for classical music—anything that helps a caregiver know the idiosyncrasies of your child,” she says. “Obviously, these likes and dislikes will change over time, so these instructions will need to be continually updated.”
You’ll also want to leave instructions about how you’d like your trustee to manage the money you leave behind. “The life expectancy of the special-needs child should be considered so that you can determine how much should be allocated each year for whatever provisions you’d like doled out and what percentage should continue to be invested to ensure there’s enough for the remainder of your child’s life,” says Ashmore.
TYING UP LOOSE ENDS
Parents of a special-needs child don’t need to be convinced that life can unfold at an unexpected pace and in unexpected ways. In the event that your child succumbs to his or her illness or condition, the child’s special-needs trust can be utilized after death. Hall explains, “The trust’s terms will dictate who the contingent beneficiaries will be at the termination of the trust. Many times, this is the siblings of the [special-needs child] or maybe a charity.”
It’s important to note that the Medicaid Recovery Act requires that 65 percent of the benefits the child received from Medicaid be paid back if funds remain in the special-needs trust. “For the longest time nobody enforced it, but now the money must be paid back,” says Yates. There are exceptions, however, such as if the special-needs trust beneficiary has children or a surviving spouse; then the payback is waived.
Moving? Every state has different laws governing trusts (special-needs or otherwise) so it’s also important, if you move, to have an attorney in your new state look over your estate-planning documents when you set up new residency.
“The bottom line on special-needs trusts,” says Garnett, “is, without one, it’s like driving around without a seatbelt on. You may not get hit, but boy, if you do, you’re in trouble.” And whether you’re driving a Lexus or a clunker, you need a seatbelt. That’s to say, no matter what end of the economic spectrum you’re on, if you’ve got a special-needs child, chances are you need a special-needs trust.
Says Alicia, whose daughter has Down syndrome, “It was daunting … but once we thought everything through and signed the papers, what a tremendous weight was lifted off our shoulders knowing we had this safety net in place.”
Because of the financial nature of this story, parents’ first names have been changed and last names have been omitted.
