Amount to set aside for Special Needs Trust

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Swampy
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Amount to set aside for Special Needs Trust

Post by Swampy »

We're finally meeting with an attorney regarding setting up a Special Needs Trust for our mentally handicapped 17 year old son. Since this trust would be a part of a larger living trust, it wouldn't be funded until after both, my wife and I, pass.

He will be eligible for aid and living in a subsidized group home after our death and we don't want to jeopardize any aid to him after we are gone. There are many limitations as to how the money can be spent, which I haven't fully grasped. We both want to make sure someone is there to watch out for his interests and make his life a little more comfortable. He will never be employable. He has the mental level of a 2-3 year old and is essentially nonverbal.

As a result, we haven't been able to more accurately assess how much to fund it when we die.
We haven't really found any guidance in this aspect. Estimates range from a low of $250,000 to millions of dollars.

Depending on when we die, his trust may be funded entirely by life insurance.
On the other hand, term insurance will skyrocket after the term is up and we may end up dropping it, preferring instead to fund the special needs trust from investments, maybe even an IRA.

The last thing we want to do is shortchange our son, but we don't want to 'over-fund' it either.

Depending on the amount in the living (family or revocable) trust after we're gone, the Special Needs Trust would be funded and I'd like to add a clause that indicates the dollar amount funding to the Special Needs Trust would be adjusted for CPI from this year going forward.
(Example - If we determine he needs $250,000 in today's dollars and we both die catastrophically next month, then the amount is $250,000. But if we live another 30 years, then the $250,000 with CPI adjustment might be $500,000 or even more at that future date.)

His financial needs may only be $200 a month - or - they might be several thousand a month.

Obviously, with the passage of time and factoring in inflation, those dollar amounts will change.

We also have other kids to concern ourselves with.

If anyone out there has created a Special Needs Trust, what has been your experience in how much basic funding (versus ideal funding) it requires?

PS Lawyers are not inexpensive. I'd like to hash out ideas before I meet with one at $XXX per hour!

Thanks.
Last edited by Swampy on Thu Sep 18, 2014 12:25 pm, edited 1 time in total.
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Topic Author
Swampy
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Re: Amount to set aside for Special Needs Trust

Post by Swampy »

PS

Since the term of the Special Needs Trust payout could exceed 60 years, I'm looking at an annual payout of no more than 2% after expenses. My concern is that the expenses may be ridiculously high, too.
If I have seen further, it was by standing on the shoulders of giants.
TheBeej418
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Re: Amount to set aside for Special Needs Trust

Post by TheBeej418 »

With the nuances of SNT and the qualification requirements/stipulations for SSI/SSD, make sure you have a great attorney and trustee lined up. I recently participated in a 'seminar' on this topic, wanting a better understanding for myself, and it is far more complicated than I had even thought already. The trustee company who led it goes as far as coming to meet the entire family and I believe they can help with many of these types of questions.

Not knowing your child's disabilities or requirements, I don't know that any of us could accurately answer your question. Far more complicated than giving input on an asset allocation and I would highly recommend making sure you just partner with the best professionals you can on the subject who best know your exact situation.
CFOKevin
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Re: Amount to set aside for Special Needs Trust

Post by CFOKevin »

Swampy,

Here's how we have done it. We have a 22 year old daughter with significant cognitive challenges who functions in the range of a typically developing 5-7 year old. We have three other children and their grandparents have generously funded 529 plans for each of them. Because they wanted to do something similar for our daughter with special needs, we set up a SNT that has been funded by them and us and now holds roughly $200K. We have yet to make any withdrawals and plan to have it throw off up to $10K per year to fund supplemental needs (those not covered my her SSI payments, job income and Medicaid).

I've filed the tax returns for the trust and it takes less than 30 minutes a year. We have an attorney with a good reputation and our SNT provides that any unused funds go to our daughter's siblings. I expect that is pretty standard language. Supplemental needs is the important term and that is what the use of the funds is limited to. This structure also keeps other benefits intact. For our daughter, we expect to use trust funds for recreation, travel, clothing, and other "extras".

I would come up with an amount based on your estimate of the difference in cost between how you'd like your son to live and what his benefits will afford. You might also want to plan for a slight decrease in benefits over time since that is the direction most expect to see.

One last thing from one parent to another, don't rule out paid employment. My daughter works 24 hours per week in two jobs and I know dozens of kids with greater challenges than hers who are employed. One individual with challenges more significant than your son's has his own can crushing/recycling business that has dozens of major local businesses as clients. Of course, job supports are critical to making employment strategies successful and States differ in offering/providing them.

Kevin
Last edited by CFOKevin on Thu Sep 18, 2014 5:02 pm, edited 1 time in total.
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Re: Amount to set aside for Special Needs Trust

Post by LadyGeek »

This thread is now in the Personal Finance (Not Investing) forum (trust).
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DanVa
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Re: Amount to set aside for Special Needs Trust

Post by DanVa »

Swampy,

We have a Special Needs Trust for our daughter (33, Down Syndrome). Ours, though, probably will not be funded until after my wife and I die. I am sure you know this--the "special needs" part of that means that the money in the trust is to be used only for needs above and beyond what she is entitled to through governmental programs. We have a "letter of intent" that indicates the things she is used to doing and having (art lessons, DVDs, concert attendance, etc.) and that add meaning to her life and for which the money should be expended. We assume that she will qualify for Medicaid Waiver at some point (we've not applied), so it is important that her assets not exceed $2,000. We have been encouraged to consider a second-to-die universal life insurance policy, but the thought of throwing that kind of money at an insurance company for an extended period is really unattractive.

We have no idea what her financial needs will be after we die; they could be relatively slight or they could be considerable. The same is true for all of us, of course. In the meantime, we save, invest, and hope that the safety nets will improve in the coming years.

As the Social Security agent told us a few months ago: "Your situation is really complicated." Anyway, because of the complexity and possibly adverse consequences of being misinformed, we are working with a lawyer who specializes in legal documents of this type. We can only do the best with what we know.

DanVa
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Swampy
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Re: Amount to set aside for Special Needs Trust

Post by Swampy »

It is hard being the parent of a kid with special needs. This is just one more burden that the average person, fortunately for them, has no clue about.

I'm reading a book called "Beyond the Grave' currently, which describes some nightmarish scenarios. It's an eye opener.

All we can do is plan for the worst and to do the best and most comprehensive plan available, then revisit it regularly to see if it still is in compliance with the then-current laws.

Another thing is to get the trust reviewed by a second attorney - kind of like a 'second medical opinion' - to see if everything that can be covered has been covered.
If I have seen further, it was by standing on the shoulders of giants.
PatSea
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Re: Amount to set aside for Special Needs Trust

Post by PatSea »

I understand your concerns as my wife and I are just beginning this SNT process for our adult son. I have come to understand that it is very important to work with an attorney who specializes in Special Needs Trusts. Don't use just any attorney, this subject us far too complex and requires an attorney that works in this every day. If it is not set up properly, all government benefits are put at risk.
Here in Ohio there are non-profit organizations that administer Special Needs Trusts, and provide some guidance in starting the Trust process. One such organization is Community Fund Management Foundation.
TFR
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Re: Amount to set aside for Special Needs Trust

Post by TFR »

I have no comment on the amount suitable for your child's special needs trust, but I do have two other comments that may be useful to you based on my family members' special needs trusts.

You may wish to fund the trust now, even with a dollar, if you anticipate that it might receive any other inheritances before yours (and let appropriate people know for their estate plans). Or even if you do not anticipate. In my family, a generous aunt died too soon, resulting in a legal ordeal to ensure that the special needs persons would not receive the funds directly. I am not privy to other advantages/disadvantages/reporting requirements for establishing the trust in advance of your death, so do investigate.

Second, if the funds are sufficient and need exists, the trustee may choose to pay some the SSI-covered expenses even if it results in losing some portion of the federal/state benefits. A special needs family member is in a very good housing/care situation right now, but I learned last month that should the situation deteriorate in some future decade and no acceptable benefit-paid alternative is found, the trust could pay for an alternative. That may be something to consider if the trust is "overfunded" or considering particular needs to be met, vagaries of federal/state systems, and state-of-the-art care in the lifetime to come. Again, investigate in depth the advantages/disadvantages.

Best wishes
ataloss
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Re: Amount to set aside for Special Needs Trust

Post by ataloss »

As a result, we haven't been able to more accurately assess how much to fund it when we die.
We haven't really found any guidance in this aspect. Estimates range from a low of $250,000 to millions of dollars.
I think all you can do is estimate. People plan 3-4% withdrawals from retirement portfolios that need to last a few decades. Maybe 2% would be a good estimate for this longer term situation. That would mean 50x current spending. Of course you would need to inflation adjust and perhaps even eventually account for his aging. I am not sure that a one time attorney visit will resolve this.
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in_reality
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Re: Amount to set aside for Special Needs Trust

Post by in_reality »

Swampy wrote: He will be eligible for aid and living in a subsidized group home after our death and we don't want to jeopardize any aid to him after we are gone. There are many limitations as to how the money can be spent, which I haven't fully grasped.
There is some documentation on what spending reduces benefits here. Don't know if it's the best and this is not a suggestion to use this trust company but just for reference and comparison. http://www.kisstrust.com/SpecialNeedsGuide.htm

I wish your family and son the best.
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Swampy
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Re: Amount to set aside for Special Needs Trust

Post by Swampy »

Thank you everyone for your thoughtful and reasoned insight and responses.

I'll probably end up funding the SNT with more than the expected minimum, especially if it reverts back to his siblings/direct heirs on his death.

Since I am hoping that the trust is capable of lasting at least 60 years, I've already done some basic calculations and guesstimated a 1.5-2% annual withdrawal from an investment asset allocation of roughly 5% cash (to cover expenses) and the remainder divided to a 40% equity index and 60% intermediate bond mix.

Actually 5% cash, 38% equity and 57% bond.

It appears that this asset allocation and withdrawal rate offers the best chance for avoiding financial ruin.

I've also revisited the idea of dropping life insurance in the near future.
I won't. I'll use that to fund the SNT.

The problem I see with funding the SNT now, even minimally, is the minimum annual fee which automatically siphons off a few thousand bucks. I do not foresee any relative leaving anything of value to our son. If, in the unlikely event this happened, the amount probably wouldn't equal the costs of activating the SNT early and it would be refused.
If I have seen further, it was by standing on the shoulders of giants.
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