Special Needs Trust

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pete1983
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Special Needs Trust

Post by pete1983 » Thu Jun 14, 2018 10:22 am

Long time reader, first time poster.

I am a 35yo physician just finishing up my last few years of training and trying to figure out finances. I have an 8 yo daughter who was born prematurely and has a lot of medical needs. Luckily, I am in the military and her healthcare is covered 100%. I don't have a lot of assets (~$150,000) but I do have 2.5 million in term life insurance because if my daughter's special needs. The decision to stay in the military or get out at the end of my obligation will likely be based on my daughters healthcare expenses.

Any advice on setting up special needs trust to be funded with my life insurance upon my death. Alternatively, If I live to a ripe old age, how do plan for a child who is unlikely to be financially independent in the future?

I have 3 other children and a wife to consider as well in this equation.

How much has it cost you to setup special needs trusts? I got a quote once for 3-4K which seemed excessive, but I am not sure.

Thanks!

bsteiner
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Re: Special Needs Trust

Post by bsteiner » Thu Jun 14, 2018 11:20 am

The trust for the child with special needs is for the most part the same as the trust for the child without special needs. The difference is that, depending on the nature of the disability, the child with special needs may have a lesser degree of control (or no control at all) over his/her trust.

When a child has special needs, we also add some language saying what's intended. But that's more for show since people expect to see it.

Of course, certain distributions could result in the loss of government benefits. But that goes to the administration rather than the drafting.

You can put the trust in your Will, as you would for a child without special needs. You don't need a separate trust instrument.

Since life insurance becomes cash upon death, it doesn't matter whether you die early and leave life insurance or you live a while and have financial assets rather than life insurance.

Since a substantial percentage of clients have a child with special needs, the cost of this should be the same as the cost of doing a Will for someone whose children don't have special needs. That could be more or less than the figure you mentioned depending on the level of the law firm, whether it has a good trusts and estates practice, and whether it's in a large city or a rural area.

informal guide
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Re: Special Needs Trust

Post by informal guide » Thu Jun 14, 2018 12:59 pm

One simpler option to consider is a 529 ABLE Account. They work much like 529 plans; some states even provide state income tax deductions for contributions to them. Funds that remain in the account grow tax-deferred and can be withdrawn tax-tree when used for the beneficiary.

An attractive part of them is they don't require the expense of setting up a trust and can handle small contributions efficiently; on the other hand, 529 ABLE accounts have contribution limits and some quirky rules that differ from trusts.

I would suggest Googling your state name and 529 ABLE accounts. To open one, you need to ensure your daughter meets the ABLE account disability definition.

Others with direct experience may be able to chime in.

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Matahari
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Re: Special Needs Trust

Post by Matahari » Thu Jun 14, 2018 1:01 pm

In case you have not come across this website that provides information for families that are similarly-situated as your, you should check here also:

https://www.specialneedsalliance.org/

This page has resources containing pertinent information:

https://www.specialneedsalliance.org/resources/

Best wishes to you and your family.

stlrick
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Re: Special Needs Trust

Post by stlrick » Thu Jun 14, 2018 2:25 pm

You cannot do this without good professional advice. Your decision about staying in the military might depend on the health care available to your daughter if you leave the military. The nature of state and federal programs and their guidelines, definitions of disability, ages at which programs terminate or become available, what happens if you pass away, etc. require the help of an attorney who specializes in special needs. These attorneys usually do special needs and elder care, and nothing else. An honest family attorney would tell you that the laws are so specialized and so detailed that either you do it exclusively or you don't do it at all.

Don't base any decisions on the life insurance agent who wants you to buy a policy to fund the trust. Look carefully at the assumptions that are used to show you what your life insurance will pay out if you should live to 95. My special needs child is expected to have a normal life span. I decided that funding the trust with life insurance was basically a bet that I would die young, and decided instead to do it the old-fashioned Boglehead way of growing an estate.

Right now, at age 8, all kinds of support services are there to help you - schools, family health insurance, etc. When your child is an adult, the system basically deserts you. Planning for a disabled child's old age is immensely complicated.

Yes, 3-4 k from a qualified attorney is not unusual for a Special Needs Trust. Also, your personal documents need to be updated if you create the trust, so that the trust is the beneficiary of your estate, not your daughter directly. Anyone who might leave something to your daughter must do the same (grandparents, etc). Once the trust is funded, it has to file an annual tax return, and the tax rate on the trust is much higher at lower incomes that it is on individuals. The real purpose of the Special Needs Trust is to allow your daughter to continue to have access to federal or state support that has income and asset restrictions. I probably would not create the Trust until you understood what benefits you would be protecting by creating it, as well as the restrictions on how funds in the trust can be used. You might start with the Nolo book on "Special Needs Trusts" and Jackins et al. "Managing a Special Needs Trust."

Nutmeg
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Re: Special Needs Trust

Post by Nutmeg » Thu Jun 14, 2018 5:42 pm

bsteiner wrote:
Thu Jun 14, 2018 11:20 am
The trust for the child with special needs is for the most part the same as the trust for the child without special needs. The difference is that, depending on the nature of the disability, the child with special needs may have a lesser degree of control (or no control at all) over his/her trust.

When a child has special needs, we also add some language saying what's intended. But that's more for show since people expect to see it.

Of course, certain distributions could result in the loss of government benefits. But that goes to the administration rather than the drafting.
I am a retired attorney and the trustee of both a typical trust and a special needs trust, and I feel compelled to write because I believe this quote is flat-out wrong.

The wording in the special needs trust document is not merely for show, but rather creates a legal document that protects the beneficiary’s assets and gives parameters for the trustee.

A supplemental special needs trust with inadequate wording could cause the beneficiary to lose government benefits even if no distributions have been made.

I second the recommendation of the Special Needs Alliance website, made in an earlier post, as a source of excellent information. Also, I recommend that you consult with an elder law attorney who has experience with special needs issues. Neither bar exam I took (years ago) asked anything about special needs trusts, and I made certain to consult with an attorney with relevant experience when the special needs trust for which I am trustee was created.

JoeRetire
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Re: Special Needs Trust

Post by JoeRetire » Thu Jun 14, 2018 5:47 pm

pete1983 wrote:
Thu Jun 14, 2018 10:22 am
I have an 8 yo daughter who was born prematurely and has a lot of medical needs. Luckily, I am in the military and her healthcare is covered 100%. I don't have a lot of assets (~$150,000) but I do have 2.5 million in term life insurance because if my daughter's special needs. The decision to stay in the military or get out at the end of my obligation will likely be based on my daughters healthcare expenses.

Any advice on setting up special needs trust to be funded with my life insurance upon my death. Alternatively, If I live to a ripe old age, how do plan for a child who is unlikely to be financially independent in the future?
IMHO, this is one of those cases where professional help is easily justified. You have some big, life-altering decisions ahead of you.

Find a fee-only fiduciary financial planner and spend a few hours going over your goals with particular emphasis on the needs of your daughter. Many of them will help you find a qualified attorney to help as needed. I believe this will be money well spent.

boomuh
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Re: Special Needs Trust

Post by boomuh » Thu Jun 14, 2018 6:30 pm

informal guide wrote:
Thu Jun 14, 2018 12:59 pm
One simpler option to consider is a 529 ABLE Account. They work much like 529 plans; some states even provide state income tax deductions for contributions to them. Funds that remain in the account grow tax-deferred and can be withdrawn tax-tree when used for the beneficiary.

An attractive part of them is they don't require the expense of setting up a trust and can handle small contributions efficiently; on the other hand, 529 ABLE accounts have contribution limits and some quirky rules that differ from trusts.

I would suggest Googling your state name and 529 ABLE accounts. To open one, you need to ensure your daughter meets the ABLE account disability definition.

Others with direct experience may be able to chime in.
Just a note about 529 ABLE accounts vs special needs trusts: the advantage of an ABLE account is that the funds (up to $100,000 at the moment) can be used for food and housing without affecting government benefits (namely SSI and Medicaid). In contrast, funds spent on food and housing through a special needs trust would be considered "in-kind support and maintenance" under SSI so would reduce SSI payments. So it's good to have both in my opinion -- SNT for fun stuff and to improve quality of life (movies, outings, etc.) and ABLE for food and housing (to get an upgrade on what the government funds would pay for).

I have a 4-year old daughter with special needs who will very likely never be able to live independently, and we have both a SNT and an ABLE account. The SNT is unfunded and will only go into effect once my wife and I both die; all of are accounts (life insurance, 401k, TSP, ROTH IRAs, savings accounts, etc.) designate our revocable living trust (under which the SNT falls) as the secondary beneficiary should my wife and I both die. We're maxing the ABLE account now ($15,000 annual contribution limit for 2018), but I'm not sure what we'll do once it gets close to $100,000 (above which the account balance DOES affect SSI/Medicaid benefits).

We had an elder care attorney set up our SNT for a flat fee of $1,000 (in northern Virginia suburbs of DC). $3-4k seems very high, but I suppose it's possible in certain parts of the country.

bsteiner
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Re: Special Needs Trust

Post by bsteiner » Fri Jun 15, 2018 7:55 am

I think some people are confusing two different types of special needs trusts.

Medicaid payback/first party trusts (funded with the beneficiary's own money

One is the Medicaid payback trust (or first party trust in Medicaid parlance), funded with the child's own money, often the proceeds of a personal injury or medical malpractice award. That's a specialized type of trust, with detailed requirements. We refer these out to elder law/Medicaid lawyers, though not necessarily from among those in the marketing group mentioned. This may be what a couple of the people who responded had in mind.

Third-party trusts funded with someone else's money (as is the case here)

The other, which is more common, is funded with someone else's money. That's called a third-party trust in Medicaid parlance. That's what's involved here.

The only requirement (for Medicaid) is that the beneficiary can't have any entitlement. So no mandatory distributions. For avoidance of doubt, it's best not to limit distributions to specified purposes (so as not to give rise to a claim that trustees have to distribute for those purposes), or even to enumerate permissible purposes (for the same reason).

Except in a QTIP (marital) trust where the spouse is entitled to all the income, we generally don't mandate distributions, limit distributions or enumerate permissible purposes for distributions even for beneficiaries without special needs. This is for asset protection and other reasons.

These types of trusts are common in any trusts and estates practice, since a substantial percentage of clients have children with special needs. For the most part they're the same as the trusts for children without special needs, though for avoidance of doubt, and as a guide to the trustees, it's common to include a few paragraphs saying that, without limiting the trustees' discretion, the trust is intended to supplement but not supplant government benefits.

carolinaman
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Re: Special Needs Trust

Post by carolinaman » Fri Jun 15, 2018 8:56 am

bsteiner wrote:
Fri Jun 15, 2018 7:55 am
I think some people are confusing two different types of special needs trusts.

Medicaid payback/first party trusts (funded with the beneficiary's own money

One is the Medicaid payback trust (or first party trust in Medicaid parlance), funded with the child's own money, often the proceeds of a personal injury or medical malpractice award. That's a specialized type of trust, with detailed requirements. We refer these out to elder law/Medicaid lawyers, though not necessarily from among those in the marketing group mentioned. This may be what a couple of the people who responded had in mind.

Third-party trusts funded with someone else's money (as is the case here)

The other, which is more common, is funded with someone else's money. That's called a third-party trust in Medicaid parlance. That's what's involved here.

The only requirement (for Medicaid) is that the beneficiary can't have any entitlement. So no mandatory distributions. For avoidance of doubt, it's best not to limit distributions to specified purposes (so as not to give rise to a claim that trustees have to distribute for those purposes), or even to enumerate permissible purposes (for the same reason).

Except in a QTIP (marital) trust where the spouse is entitled to all the income, we generally don't mandate distributions, limit distributions or enumerate permissible purposes for distributions even for beneficiaries without special needs. This is for asset protection and other reasons.

These types of trusts are common in any trusts and estates practice, since a substantial percentage of clients have children with special needs. For the most part they're the same as the trusts for children without special needs, though for avoidance of doubt, and as a guide to the trustees, it's common to include a few paragraphs saying that, without limiting the trustees' discretion, the trust is intended to supplement but not supplant government benefits.
A primary purpose of a special needs trust is to not affect any governmental assistance (medicaid, etc.) with the trust. I would want to make sure the trust is written so the person is not disqualified from government services because of the trust assets and income.

bsteiner
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Re: Special Needs Trust

Post by bsteiner » Fri Jun 15, 2018 10:28 am

carolinaman wrote:
Fri Jun 15, 2018 8:56 am
...
A primary purpose of a special needs trust is to not affect any governmental assistance (medicaid, etc.) with the trust. I would want to make sure the trust is written so the person is not disqualified from government services because of the trust assets and income.
That's the easy part (in the case of a third-party trust funded by someone else). As long as the beneficiary has no entitlement to any distributions, the trust's assets and income won't disqualify the beneficiary.

The hard part is administering the trust. Certain types of distributions will affect the benefits, but other types of distributions won't. After the testator dies and the trust comes into effect, the trustees should consult with a Medicaid lawyer as to what distributions they can make without affecting the benefits. If the trust is large enough, they may decide that making distributions is more important than preserving the benefits, especially now that anyone can get health insurance under the Affordable Care Act. We've had some situations where the trustees did that, and other situations where the trustees made sure to preserve the benefits.

carolinaman
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Re: Special Needs Trust

Post by carolinaman » Sat Jun 16, 2018 7:59 am

bsteiner wrote:
Fri Jun 15, 2018 10:28 am
carolinaman wrote:
Fri Jun 15, 2018 8:56 am
...
A primary purpose of a special needs trust is to not affect any governmental assistance (medicaid, etc.) with the trust. I would want to make sure the trust is written so the person is not disqualified from government services because of the trust assets and income.
That's the easy part (in the case of a third-party trust funded by someone else). As long as the beneficiary has no entitlement to any distributions, the trust's assets and income won't disqualify the beneficiary.

The hard part is administering the trust. Certain types of distributions will affect the benefits, but other types of distributions won't. After the testator dies and the trust comes into effect, the trustees should consult with a Medicaid lawyer as to what distributions they can make without affecting the benefits. If the trust is large enough, they may decide that making distributions is more important than preserving the benefits, especially now that anyone can get health insurance under the Affordable Care Act. We've had some situations where the trustees did that, and other situations where the trustees made sure to preserve the benefits.
Thanks Bruce

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Nords
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Re: Special Needs Trust

Post by Nords » Sat Jun 16, 2018 11:51 am

pete1983 wrote:
Thu Jun 14, 2018 10:22 am
I am a 35yo physician just finishing up my last few years of training and trying to figure out finances. I have an 8 yo daughter who was born prematurely and has a lot of medical needs. Luckily, I am in the military and her healthcare is covered 100%. I don't have a lot of assets (~$150,000) but I do have 2.5 million in term life insurance because if my daughter's special needs. The decision to stay in the military or get out at the end of my obligation will likely be based on my daughters healthcare expenses.

Any advice on setting up special needs trust to be funded with my life insurance upon my death. Alternatively, If I live to a ripe old age, how do plan for a child who is unlikely to be financially independent in the future?

I have 3 other children and a wife to consider as well in this equation.
Pete, you might already be aware of this, but a couple years ago the military's Survivor Benefit Plan legislation was modified to allow retirees to assign a Special Needs Trust as the beneficiary of the policy.

You can insure your daughter (payable to the SNT) as well as your spouse and the rest of your family. If your daughter is a disabled adult then (after your death) the SBP payout to her SNT continues for the rest of her life. You can continue to cover your spouse (with some caveats) and your other kids (until they age out). The SBP payments to the SNT (if it's set up correctly by a professional) should ensure that she doesn't earn out of her other state/community/Medicaid benefits.
https://www.dfas.mil/retiredmilitary/pr ... trust.html

I heard from several military families with special-needs kids where the servicmember has concluded that it's in everyone's best interests to serve until retirement. As a physician you have quite a bit more human capital ahead of you, but SBP premiums are subsidized about 45% by the federal government. You can't buy a cheaper survivor lifetime inflation-adjusted annuity, although it's probably only one part of your insurance planning.

Military trivia: as of a couple years ago the U.S. Treasury was paying life annuities to the disabled adult children of two different Civil War veterans. The vets had these children very late in life (in the 1920s-30s) and of course the adults have also shown extraordinary longevity. It's another example of the long-tail costs of funding a military, but I think it's also a good example of the reliability of the SBP payout.
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JBTX
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Re: Special Needs Trust

Post by JBTX » Sat Jun 16, 2018 10:20 pm

Nutmeg wrote:
Thu Jun 14, 2018 5:42 pm
bsteiner wrote:
Thu Jun 14, 2018 11:20 am
The trust for the child with special needs is for the most part the same as the trust for the child without special needs. The difference is that, depending on the nature of the disability, the child with special needs may have a lesser degree of control (or no control at all) over his/her trust.

When a child has special needs, we also add some language saying what's intended. But that's more for show since people expect to see it.

Of course, certain distributions could result in the loss of government benefits. But that goes to the administration rather than the drafting.
I am a retired attorney and the trustee of both a typical trust and a special needs trust, and I feel compelled to write because I believe this quote is flat-out wrong.

The wording in the special needs trust document is not merely for show, but rather creates a legal document that protects the beneficiary’s assets and gives parameters for the trustee.

A supplemental special needs trust with inadequate wording could cause the beneficiary to lose government benefits even if no distributions have been made.

I second the recommendation of the Special Needs Alliance website, made in an earlier post, as a source of excellent information. Also, I recommend that you consult with an elder law attorney who has experience with special needs issues. Neither bar exam I took (years ago) asked anything about special needs trusts, and I made certain to consult with an attorney with relevant experience when the special needs trust for which I am trustee was created.
Not to stir the pot, but as a parent of a special needs kid who is a newbie to this SNT area and kicking around scenarios, it would be helpful to reconcile the two points of view above, as it relates to third party SNT. It is applicable to my situation because I had already have estate planning documents that creates special needs trust if needed. I had another special needs specialist (not an attorney) look at it and he said certain language in it potentially put eligibility for Medicaid at risk, presumably just by the existence of that language. My suspicion is the second party was greatly exaggerating such risk for self service purposes (which included a portfolio of financial planning services and an entire redraft of existing estate planning documents).

So the question is whether the actual language of the trust is Important for Medicaid eligibility, or is it mainly the execution of distributions and what they are used for.

From some things I have read there is some common language that is typically found in SNTs. Seems like they mainly say it is NOT to be used for food and shelter but then lists a whole host of things that could potentially be appropriate uses. Does that language serve mainly as instructions or is that language necessary to shield the trust assets from Medicaid eligibility testing?

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Alexa9
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Re: Special Needs Trust

Post by Alexa9 » Sat Jun 16, 2018 10:26 pm

FYI the Ohio ABLE Plan uses Vanguard Lifestrategy Funds. Doesn't matter what state you're in.

JBTX
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Re: Special Needs Trust

Post by JBTX » Sat Jun 16, 2018 10:47 pm

boomuh wrote:
Thu Jun 14, 2018 6:30 pm
informal guide wrote:
Thu Jun 14, 2018 12:59 pm
One simpler option to consider is a 529 ABLE Account. They work much like 529 plans; some states even provide state income tax deductions for contributions to them. Funds that remain in the account grow tax-deferred and can be withdrawn tax-tree when used for the beneficiary.

An attractive part of them is they don't require the expense of setting up a trust and can handle small contributions efficiently; on the other hand, 529 ABLE accounts have contribution limits and some quirky rules that differ from trusts.

I would suggest Googling your state name and 529 ABLE accounts. To open one, you need to ensure your daughter meets the ABLE account disability definition.

Others with direct experience may be able to chime in.
Just a note about 529 ABLE accounts vs special needs trusts: the advantage of an ABLE account is that the funds (up to $100,000 at the moment) can be used for food and housing without affecting government benefits (namely SSI and Medicaid). In contrast, funds spent on food and housing through a special needs trust would be considered "in-kind support and maintenance" under SSI so would reduce SSI payments. So it's good to have both in my opinion -- SNT for fun stuff and to improve quality of life (movies, outings, etc.) and ABLE for food and housing (to get an upgrade on what the government funds would pay for).

I have a 4-year old daughter with special needs who will very likely never be able to live independently, and we have both a SNT and an ABLE account. The SNT is unfunded and will only go into effect once my wife and I both die; all of are accounts (life insurance, 401k, TSP, ROTH IRAs, savings accounts, etc.) designate our revocable living trust (under which the SNT falls) as the secondary beneficiary should my wife and I both die. We're maxing the ABLE account now ($15,000 annual contribution limit for 2018), but I'm not sure what we'll do once it gets close to $100,000 (above which the account balance DOES affect SSI/Medicaid benefits).

We had an elder care attorney set up our SNT for a flat fee of $1,000 (in northern Virginia suburbs of DC). $3-4k seems very high, but I suppose it's possible in certain parts of the country.
As to the ABLE account, if you are putting in $15k a year and child is only 4, you will get to $100k pretty quickly, and may also experience substantial growth. Doesnt that put you at risk of exceeding $100k well before the child becomes an adult and thus losing eligibility for SSI?

We have a 14 year old with special needs. I will consider creating one in the next few years but it seems there are some risks in setting it up too early. There is no guarantee he will qualify for Medicaid. In terms of tax free growth of assets that is a perk but to me an entirely secondary and otherwise marginal benefit of ABLEs.

Could one simply put in $15k per year every year into the ABLE once child turns 18 to fund much of the annual food and shelter not covered by a SNT?
Last edited by JBTX on Sat Jun 16, 2018 10:58 pm, edited 1 time in total.

mrsbetsy
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Re: Special Needs Trust

Post by mrsbetsy » Sat Jun 16, 2018 10:52 pm

It truly depends on your intentions. If you intend to insure that your child continue living dependent on government entitlements, then the trust needs to be constructed so that the executor of the trust understands your wishes.

If you don't care and believe you can provide financial stability for your child long after you are gone, then then the answers to the questions might be quite different.

For now, because she is so young, I would position it so that she will rely on government entitlements. You can always change it later.

For us, we paid $5500 for our entire trust including special needs trust and many other things. We wanted it set up and "tied with a bow" for our older daughter who will be executor. Our attorney made absolute sure that we went through it thoughtfully. For us, it really wasn't about our daughter saying "no" to things her sibling requested, but about our wishes for the things that we wanted for him. For example, always funding family gatherings and always making sure he had access to recreational activities.

Our attorney wrote this book and we found it incredibly helpful:

https://www.amazon.com/Administering-Ca ... rnia+trust


Alternatively, check out the ABLE accounts. These can be funded up to 14K a year to a lifetime maximum of 100K. I'm not sure what state you are in, but CA eliminated the MediCAL clawback and is working on making contributions tax deductible. It's a great way to subsidize quality of life without interfering with entitlements. It's a great addition to a trust, but definitely NOT a substitute.

We did it this way to protect him. Our assets will be split equally upon our death, but having a special needs trust will protect those funds. Our daughter is amazing but in the unlikely event she runs a stop sign and hits a carload of attorneys, it is essential that his side of the equation is protected.

Don't scrimp to save a buck. Make it EASY for whomever will be responsible after your passing. Make sure it is crystal clear your wishes for her life. A good attorney will set a fee and will be patient with many questions and pose things to think about that you might not even imagine.

mrsbetsy
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Re: Special Needs Trust

Post by mrsbetsy » Sat Jun 16, 2018 10:58 pm

"Could one simply put in $15k per year every year into the ABLE once child turns 18 to fund much of the annual food and shelter not covered by a SNT?"


Yes, that is the point. They can spend that amount additionally per year without it reducing their entitlements.

JBTX
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Re: Special Needs Trust

Post by JBTX » Sun Jun 17, 2018 12:03 am

mrsbetsy wrote:
Sat Jun 16, 2018 10:58 pm
"Could one simply put in $15k per year every year into the ABLE once child turns 18 to fund much of the annual food and shelter not covered by a SNT?"


Yes, that is the point. They can spend that amount additionally per year without it reducing their entitlements.
What I am asking is could the contribution be made that year or the year before by the parent into the ABLE, as opposed to funding it years in advance. Thus it becomes simply a conduit for parents funding shelter expense on an annual basis and avoiding benefit reduction.

Also what I read here is that an ABLE can be used for some qualifying housing expenses but not for food.

https://www.begleylawgroup.com/2017/11/ ... ssi-check/
FOOD

Payment for food is not a QDE, and would result in a penalty if paid from an ABLE account. However, with an unreduced SSI check, the disabled beneficiary should be able to pay for food with SSI funds.

mrsbetsy
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Re: Special Needs Trust

Post by mrsbetsy » Sun Jun 17, 2018 10:35 am

Yes, the contribution can be made that year and the account serve as a pass-through entity to subsidize the standard of living for recipients. This is how most people will likely use it because they don't have thousands of dollars to contribute. It's so new and getting ahead of the needs might be hard.

Ideally though, it will accumulate enough so that anything over the threshold can be invested. Those investments can help it grow past the annual contribution.

Each state has different rules. I'm in CA, which hasn't yet rolled it out, but if they end up getting all that they are asking it's going to be a great thing for the residents.

But you are correct, food is not something recipients should use their ABLE debit card to access. Grocery receipts will have to be separated so that nonfood items are tracked.

rockonhumblepie
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Re: Special Needs Trust

Post by rockonhumblepie » Sun Jun 17, 2018 11:28 am

Our Lawyer charges 2k for guardianship and 2,400 for SNT. Seattle area.

We went ahead with guardianship as son is 18 this year.But still going to meet and ask about estate. rockon' 8-)

Nutmeg
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Re: Special Needs Trust

Post by Nutmeg » Sun Jul 01, 2018 11:31 pm

JBTX wrote:
Sat Jun 16, 2018 10:20 pm
Nutmeg wrote:
Thu Jun 14, 2018 5:42 pm
bsteiner wrote:
Thu Jun 14, 2018 11:20 am
The trust for the child with special needs is for the most part the same as the trust for the child without special needs. The difference is that, depending on the nature of the disability, the child with special needs may have a lesser degree of control (or no control at all) over his/her trust.

When a child has special needs, we also add some language saying what's intended. But that's more for show since people expect to see it.

Of course, certain distributions could result in the loss of government benefits. But that goes to the administration rather than the drafting.
I am a retired attorney and the trustee of both a typical trust and a special needs trust, and I feel compelled to write because I believe this quote is flat-out wrong.

The wording in the special needs trust document is not merely for show, but rather creates a legal document that protects the beneficiary’s assets and gives parameters for the trustee.

A supplemental special needs trust with inadequate wording could cause the beneficiary to lose government benefits even if no distributions have been made.

I second the recommendation of the Special Needs Alliance website, made in an earlier post, as a source of excellent information. Also, I recommend that you consult with an elder law attorney who has experience with special needs issues. Neither bar exam I took (years ago) asked anything about special needs trusts, and I made certain to consult with an attorney with relevant experience when the special needs trust for which I am trustee was created.
Not to stir the pot, but as a parent of a special needs kid who is a newbie to this SNT area and kicking around scenarios, it would be helpful to reconcile the two points of view above, as it relates to third party SNT. It is applicable to my situation because I had already have estate planning documents that creates special needs trust if needed. I had another special needs specialist (not an attorney) look at it and he said certain language in it potentially put eligibility for Medicaid at risk, presumably just by the existence of that language. My suspicion is the second party was greatly exaggerating such risk for self service purposes (which included a portfolio of financial planning services and an entire redraft of existing estate planning documents).

So the question is whether the actual language of the trust is Important for Medicaid eligibility, or is it mainly the execution of distributions and what they are used for.

From some things I have read there is some common language that is typically found in SNTs. Seems like they mainly say it is NOT to be used for food and shelter but then lists a whole host of things that could potentially be appropriate uses. Does that language serve mainly as instructions or is that language necessary to shield the trust assets from Medicaid eligibility testing?
I understand your desire to reconcile the points of view. I was referring to a Third-Party Supplemental Special Needs Trust, for which the language used in creating the trust is important to ensure that the assets of the trust are not considered resources that would make the beneficiary ineligible for government benefits. For example, a SNT is considered a resource if the beneficiary has the right to terminate or revoke the trust and thereby use the assets for his support, or if the beneficiary has the right to direct how the funds are used. Therefore, it is important that the language of the trust provide that the beneficiary has no right to terminate it or direct the use of the assets. As a result, the trustee could do everything right and distribute assets for only permitted, supplemental needs, but the beneficiary’s governmental benefits could still be reduced if the language of the trust is defective in such a way that the assets are considered resources that the government will consider in assessing benefit eligibility.

I cannot explain why a different poster has taken a different view about the language used in the trust, but perhaps he will do so. Perhaps all the trusts he drafts, whether SNT or not, contain that language so he is not viewing it as special language.

If the person who reviewed your documents believe that they were incorrectly drafted, he or she should explain exactly why the language puts the beneficiary’s eligibility at risk. The answer to your follow-up question on this topic could help you assess whether the person has the desired level of expertise.

Here are additional resources that might be helpful to you.

https://www.americanbar.org/content/dam ... eckdam.pdf

https://www.specialneedsalliance.org/th ... w-process/

gd
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Re: Special Needs Trust

Post by gd » Mon Jul 02, 2018 7:03 am

I'll pile on for specialized help (3-4k seems cheap), and an additional general point. I was pulled into being Trustee for benefit of a handicapped person with only an indirect connection to me. It is a responsibility taken reluctantly, that will likely persist long after I'm uninterested and possibly incapable of dealing with it. You can't overdo the thinking and planning of this situation. You need to think carefully about what happens far into your future-- who will control a trust, what are their motives, who is going to manage your daughter's care in addition to and in conjunction with the financial trust. With luck your other children will be willing and able, but you cannot bet your handicapped daughter's outcome on that. Stuff happens, people turn out different than expected. I haven't read the other responses carefully and am not particularly qualified to evaluate them anyway, but if you're going to start thinking about "what if I get hit by a truck tomorrow", it needs to be broader planning than where the life insurance payouts go, and extend to the longest possible duration of your daughter's disabilities.

PatSea
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Re: Special Needs Trust

Post by PatSea » Mon Jul 02, 2018 7:42 am

We had a Special Needs Trust set up several years ago for our son. We sought out and found an excellent attorney with expertise in these trusts. Cost was about $1K.

FBN2014
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Re: Special Needs Trust

Post by FBN2014 » Mon Jul 02, 2018 7:42 am

You mentioned that you have term insurance. Although whole life insurance is anathema to Bogleheads, this may be a situation where whole life is needed based upon the permanent need to provide for your daughter.
"October is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May March, June, December, August and February." - M. Twain

bsteiner
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Re: Special Needs Trust

Post by bsteiner » Mon Jul 02, 2018 7:51 am

Nutmeg wrote:
Sun Jul 01, 2018 11:31 pm
...
I understand your desire to reconcile the points of view. I was referring to a Third-Party Supplemental Special Needs Trust, for which the language used in creating the trust is important to ensure that the assets of the trust are not considered resources that would make the beneficiary ineligible for government benefits. For example, a SNT is considered a resource if the beneficiary has the right to terminate or revoke the trust and thereby use the assets for his support, or if the beneficiary has the right to direct how the funds are used. Therefore, it is important that the language of the trust provide that the beneficiary has no right to terminate it or direct the use of the assets. As a result, the trustee could do everything right and distribute assets for only permitted, supplemental needs, but the beneficiary’s governmental benefits could still be reduced if the language of the trust is defective in such a way that the assets are considered resources that the government will consider in assessing benefit eligibility.

I cannot explain why a different poster has taken a different view about the language used in the trust, but perhaps he will do so. Perhaps all the trusts he drafts, whether SNT or not, contain that language so he is not viewing it as special language. ...
You are correct. Almost all of our clients provide for their children in trust rather than outright. The child has no power to terminate the trust or withdraw assets or make distributions in his/her own favor. Absent special needs, the child will usually control the trust upon reaching a specified age. In other words, absent special needs, upon reaching a specified age, the child can become a trustee, can remove and replace his/her co-trustee (provided the replacement trustee is not a close relative or subordinate employee), and can appoint (give or leave) the trust assets to anyone he/she wants (other than the himself/herself). If the child has a disability, then depending on the nature of the disability, the child may have a lesser degree of control, or no control at all.

If the child already receives or is expected to receive government benefits, we'll add the usual language saying that the intent is to supplement rather than supplant the government benefits. But the trust should be satisfactory regardless of whether this language is included. After all, a child could be perfectly healthy now, and decades later go into a nursing home and want Medicaid.

robebibb
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Re: Special Needs Trust

Post by robebibb » Mon Jul 02, 2018 8:14 am

FBN2014 wrote:
Mon Jul 02, 2018 7:42 am
You mentioned that you have term insurance. Although whole life insurance is anathema to Bogleheads, this may be a situation where whole life is needed based upon the permanent need to provide for your daughter.
I agree that whole or guaranteed universal life (possibly joint) could be appropriate for a family with a special needs child but it is not always necessary. We have a 3 y/o who will likely require life-long assistance and opted to purchase additional 30 year term insurance to ensure his wellbeing. 30 years is sufficient for us to ensure we can build a large enough estate to ensure his living standards can be funded.

An unrelated note, the ABLE accounts do not have a 100k limit as has been stated by others here. But only the first 100k is excluded from an individual's assets when determining eligibility for government benefits. What we do is fund a regular 529 up to the state deduction limit for both of our children and plan to use both accounts for our "typical" child and have any leftover funds available to roll-over to an ABLE account. I'm not certain of the current ability to roll-over from a traditional 529 to an ABLE account but I believe it's in the works and am fairly confident this is something we will be able to do in the future (If not we'll have a little cash to help a niece or nephew).

Edited for grammar.
Last edited by robebibb on Mon Jul 02, 2018 8:45 am, edited 2 times in total.

ausmatt
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Re: Special Needs Trust

Post by ausmatt » Mon Jul 02, 2018 8:26 am

First - I think there is a trove of content here that could warrant a wiki post or augmenting trust wiki section.

Second - it’s important to note that for all the ABLE accounts, the government will seek to repay any Medicaid services rendered during the lifetime upon death of the beneficiary. Regardless of >$100k or <$100k funded in the account. So it’s important to note that in the planning of fund distribution, etc.

For me that sort of makes the ABLE account not that worth it. Ties up capital in generally higher ER investments, requires you to generally use that fund first to avoid Medicaid payback and seizure of assets upon death, and complete inflexibility of the capital.

I think a SNT with the ability to do a step-up basis (or whatever it’s called to reset the cost basis when transferred) is generally a better strategy and fully sheltered from limiting Medicaid benefits and from any Medicaid payback.

JBTX
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Re: Special Needs Trust

Post by JBTX » Mon Jul 02, 2018 10:05 am

robebibb wrote:
Mon Jul 02, 2018 8:14 am
FBN2014 wrote:
Mon Jul 02, 2018 7:42 am
You mentioned that you have term insurance. Although whole life insurance is anathema to Bogleheads, this may be a situation where whole life is needed based upon the permanent need to provide for your daughter.
I agree that whole or guaranteed universal life (possibly joint) could be appropriate for a family with a special needs child but it is not always necessary. We have a 3 y/o who will likely require life-long assistance and opted to purchase additional 30 year term insurance to ensure his wellbeing. 30 years is sufficient for us to ensure we can build a large enough estate to ensure his living standards can be funded.

An unrelated note, the ABLE accounts do not have a 100k limit as has been stated by others here. But only the first 100k is excluded from an individual's assets when determining eligibility for government benefits. What we do is fund a regular 529 up to the state deduction limit for both of our children and plan to use both accounts for our "typical" child and have any leftover funds available to roll-over to an ABLE account. I'm not certain of the current ability to roll-over from a traditional 529 to an ABLE account but I believe it's in the works and am fairly confident this is something we will be able to do in the future (If not we'll have a little cash to help a niece or nephew).

Edited for grammar.
The new law does allow for transfer of 529 to ABLE but it is subject to annual gift tax limits I believe.

JBTX
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Re: Special Needs Trust

Post by JBTX » Mon Jul 02, 2018 10:18 am

ausmatt wrote:
Mon Jul 02, 2018 8:26 am
First - I think there is a trove of content here that could warrant a wiki post or augmenting trust wiki section.
The subject does come up fairly frequently.
Second - it’s important to note that for all the ABLE accounts, the government will seek to repay any Medicaid services rendered during the lifetime upon death of the beneficiary. Regardless of >$100k or <$100k funded in the account. So it’s important to note that in the planning of fund distribution, etc.
The Medicaid claw back only relates to funds remaining in the able. Because of the $100k SSI cap and claw back rules it seems like these are best with modest funding amounts used to supplement shelter and other short term needs. For a healthy child or young adult personally I wouldn't be too worried worried about claw back of modest amounts.

For me that sort of makes the ABLE account not that worth it. Ties up capital in generally higher ER investments, requires you to generally use that fund first to avoid Medicaid payback and seizure of assets upon death, and complete inflexibility of the capital.

I think a SNT with the ability to do a step-up basis (or whatever it’s called to reset the cost basis when transferred) is generally a better strategy and fully sheltered from limiting Medicaid benefits and from any Medicaid payback.
I agree that the ABLE is probably not worth the effort as a wealth accumulation vehicle. It could be useful as a supplement to a SNT that could be used for shelter or maybe as a place to park excess funds distributed from the trust.

FBN2014
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Re: Special Needs Trust

Post by FBN2014 » Tue Jul 03, 2018 7:48 am

Does a special needs trust specify the disposition of remaining assets in trust upon the death of the special needs person? Are assets typically left to surviving siblings?
"October is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May March, June, December, August and February." - M. Twain

bsteiner
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Re: Special Needs Trust

Post by bsteiner » Tue Jul 03, 2018 8:18 am

FBN2014 wrote:
Tue Jul 03, 2018 7:48 am
Does a special needs trust specify the disposition of remaining assets in trust upon the death of the special needs person? Are assets typically left to surviving siblings?
As with a trust for a child without a disability, the balance of the trust assets upon the child's death has to go somewhere.

Depending on the nature of the disability, the child might have a broad power of appointment, a power of appointment limited to his/her spouse and issue, or only to his/her issue, or no power of appointment at all.

Just as most people would do in the trust for a child without a disability, if the child doesn't exercise his/her power of appointment, or if the child doesn't have a power of appointment, the balance of the trust would typically go in further trust for the child's issue, or if none then for the child's siblings (or the issue of a deceased sibling). But (as with a trust for a child without a disability) depending on the situation the balance could go in some other way.

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