I met recently with my friend and advisor, Lauren Pearson, CFP®, to learn more about Special Needs Trusts. Lauren is a managing director and partner at HighTower Twickenham, an industry leading wealth management firm. Lauren has a great deal of experience advising families in this area and has experience in her own family.
D.: Lauren, what is your advice?
Lauren: If you have a relative or a loved one with special needs, you naturally want to provide for them in some way. In most cases, this generosity is demonstrated by providing for them in your will. Although well intended, your outright gift could compromise Social Security Disability Income (SSDI) and Medicaid benefits for the special needs person. Reinstating these benefits normally falls upon the caregiver which is more than arduous. If you are thinking of providing for a special needs loved one in your will, you might consider the following:
1) Always talk to the primary caregiver of the special needs person about your intentions. Note that the primary caregiver may be unaware of the need for a Special Needs Trust. If this is the case, please reach out to your estate planning attorney, preferably an attorney with experience drafting Special Needs Trusts, for advice and counsel. See list of interview questions for trusted advisors below.
2) If you are the primary caregiver for a special needs person, you should review all your estate planning documents and beneficiary information. My family thought all beneficiary information was up-to-date until we met with our attorney. A piece of property was to be split per stirpes with my brothers, one who has Down syndrome. This arrangement would have jeopardized my brother’s SSDI and Medicaid benefits. Make sure to review your documents regularly with your attorney.
3) For primary caregivers, think about what you want your loved one’s life to look like after you are gone. I encourage the families with whom I work to designate one person as the trustee and one person as the primary caregiver, if possible. Check with these people every two to three years to make sure they are still willing and able to serve in this capacity.
4) Make sure your trusted advisors are coordinated. It is important for your financial planner, estate planning attorney, and CPA to understand your intentions to create or contribute to a Special Needs Trust. If you are utilizing life insurance, include your agent in the conversation.
D.: So, might a Special Needs Trust be an appropriate way for a parent or other family member to provide financial support for a Special Needs family member?
Lauren: Yes. A Special Needs Trust can enable a person with a disability (mental, physical, or certain chronic illnesses) to have held for their benefit an unlimited amount of assets without affecting Social Security Disability Income (SSDI) and Medicaid benefits. In a properly drafted Special Needs Trust, the assets held in trust are not considered countable assets for purposes of qualification for certain governmental benefits. The purpose of this trust, which is why the assets are not countable, is to provide for the special needs person beyond resources provided by the government.
D: When is a Special Needs Trust unsuitable?
Lauren: I have run into the case where someone has a small insurance payout and they know they can’t leave it outright to their special needs loved one, but it would cost almost as much to set up a Special Needs Trust. If you do not have a loved one capable of serving as trustee and there are not substantial assets to place in trust, consider a pooled trust like The Alabama Family Trust.
D.: What advice do you give your clients to select the right team to handle a Special Needs Trust?
Lauren: Ask the right questions. The internet is your friend because most professionals have bios listed on their company websites. Look for information in the bios that shows the professional is a subject matter expert or has a true interest in serving families with special needs.
Once you narrow down your providers to specialists, you need to find the right fit for your family. Here is a list of interview questions for families with a loved one with special needs:
1) How did you start working with special needs families?
2) How many special needs families have you served?
3) How long have you been working with special needs families?
4) For financial advisors/planners: Will you serve in a fiduciary capacity 100 percent of the time for my family? Very important.
5) Ask for references. Some industries do not allow references for confidentiality reasons but it is good to ask.
6) Ask the advisor to give you a case study where they have worked with a family like yours.