Everyone needs an estate plan, but most people put off creating one. An estate plan is one of the three foundation steps that you need before investing. If you don’t have a basic estate plan, then an investment plan can go sour quickly in dire circumstances. Forty-one million Americans or almost 15% of the population age 5 and older have some type of disability, and 2.8 million kids (ages 5–15) have disabilities. In fact, I hardly know any family that hasn’t been affected by some child’s learning or mental disability. This means that many children will outlive the parents who support them. This is driving many families to look at having an estate plan while they are young.
A basic estate plan consists of a will, health care directive, power of attorney for financial and health care, and sometimes a living trust. It may also include a special needs or supplemental needs trust. Here are some of the characteristics of a special needs trust:
- A special needs trust provides funds for expenses that enhance a disabled person’s quality of life while not cutting off access to government benefits, such as Medicaid or Supplemental Security Income (SSI). Special-needs individuals under age 65 are allowed to have trusts funded with their own money (assets from an inheritance or legal settlement) and still have access to government benefits. Government benefits only pay out if an individual has less than $2,000 (not including a home, vehicle and basic personal items) in assets.
- There must be an independent trustee who makes distributions, communicates with the disabled person and works closely with government agencies. They handle the money management and file all the necessary paperwork for the trust.
- Third party trusts can be funded by parents and act the same way. Parents need to be careful not to pay distributions directly to the special needs person but to a trustee of the trust, normally a financial services company, lawyer, accountant or financial adviser. Other relatives, too, should be aware that they should leave gifts or an inheritance to the special needs trust not the person directly.
- Each state has their own rules governing special needs trust, so make sure your financial professional is aware of the specifics of your state. The Academy of Special Needs Planners is an excellent resource as well as the Special Needs Alliance.
If you have a family member that is disabled, make sure your estate plan contains some form of special needs trust. If not, a loved one could be losing out on benefits that could continue for them past your lifetime.
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