Caring for Individuals with Special Needs: Beyond Special Needs Trusts

By: Brian Seay, CFA

When our children or other family members are disabled, either physically or psychologically, planning for their care requires special attention. So often family members and others desire to be generous, but givers should make sure they don’t cause more financial harm in the process. Even small gifts of a few thousand dollars can compromise the government benefits a disabled individual receives!

Remember, individuals need more than just money. They may need a guardian, help working with medical providers, or additional education. Don’t forget, disabled family members need other family members and friends to rally around them for the rest of their life. Finally, their caregivers may need a break to rest and recharge! All these issues should be part of the financial planning process. In this post, we walk through key planning considerations for those with special needs.

Where to Start

When planning for disabled family members, the first step is to fully understand their medical condition and its future trajectory. The level of support they receive today may need to change over time. Will their capabilities remain stable? Will their condition worsen? Could they improve? Will they be able to work and support themselves? This holistic understanding informs the level of support and funding that may be required to care for their needs.

Once we develop an understanding of the financial needs of an individual, then a structure can be put in place to maximize the support a disabled individual receives both from the government and other sources. This structure will optimize taxes, other estate planning considerations and the government assistance an individual receives.

Do We Need a Special Needs Trust?

Often, disabled individuals receive assistance from the government in the form of disability income through Social Security or medical insurance through Medicare or Medicaid. It is critically important to understand the exact government benefits that the disabled individual receives. Specifically, the person providing the financial assistance needs to understand if the program is “means tested.” Means testing simply indicates that the individual’s income and assets are used to determine the level of benefits that are received. Some programs, like the Social Security Disability Insurance (SSDI) program, are based on the beneficiary’s work history and are not means tested. In these programs, the beneficiary will receive benefits if they qualify for the program, regardless of their financial situation. Other programs, like Medicaid and Supplemental Security Income (SSI) are means tested and have very low thresholds for individuals to qualify for benefits.  

A special needs trust, otherwise known as a supplemental benefit trust, is typically created to provide financial resources for an individual without compromising the means tested government benefits that that individual would otherwise receive. The trust is generally drafted to provide support for the beneficiary only after all other government assistance is spent. If the individual doesn’t receive means tested government benefits, they may still need support, but perhaps not through a special needs trust. In these situations, other types of trust structures may be used to provide guardrails around the assets without the administrative burden of a full supplemental needs trust.

Build the Team!

When creating a special needs trust, a trustee must be selected to determine how assets will be distributed. It is key to ensure the trust’s management has both personal knowledge of the beneficiary and the expertise to properly administer the trust. Often family members serve in some capacity because they have the best knowledge of the beneficiary. In addition to family members or friends, the trust may need to include professionals with expertise to ensure the trust is managed properly.

Beyond creating a financial structure, the individual may need to have a guardian appointed that will be around for their lifetime. If a full guardian is not required, perhaps someone will need to have a healthcare or financial power of attorney to help with decision making. Determining who those individuals are, in advance, is important to ensure a successful transition of care.

Be thoughtful about who will serve as trustee and in other areas to support the disabled individual. We recommend asking the beneficiary for their input! Who do they feel comfortable working with? They may not have the final say, but their perspective may help you make the best choices for their long-term support.

Take Care of Those Taking Care

If you are a caregiver today, you know the challenges of helping a loved one on a consistent basis. Caregivers may need support themselves and often don’t take enough time for their own rest and relaxation. Make sure to plan time for yourself or other caregivers. Perhaps plan funding for support, counseling, and even vacations to ensure everyone takes a break and stays sharp to offer the best care for your loved one.

Share the Plan!

Lastly, once a plan has been developed, share it with your family and loved ones. The beneficiary should have a basic understanding of how you are helping them – and how their unique situation makes them different than their siblings. If other siblings receive an outright inheritance, the trust beneficiary may perceive that they were left out. However, their assets are simply in a different legal structure, and they can likely use some of those assets to have fun! Don’t forget to explain the situation to other family members and friends, especially those that might leave gifts for the disabled individual. Those gifts may need to be sent to a trust or other structure instead of being left outright.

As you can see, all of this is highly complex. If you are planning for a disabled individual, we encourage you to seek professional guidance to ensure the plan creates the best environment for your family over the long-term.

If you have questions about special needs planning, please start a conversation with us. We would be happy to share our experience and insight with you.