Special Needs Trusts

Planning for family members with special needs is a complex but necessary process to ensure long-term care of those we love. Chances are there is or will be someone in your family (child, grandchild, nephew, niece, parent, grandparent) who will need long-term help managing personal care and/or finances. A quick look at the following statistics confirms that the need for special needs care and planning is increasing:

• In 1992, there were 15,580 children ages 6-22 who were diagnosed as having what is now called an Autism spectrum disorder. In 2006, the number was 224,594.
• In 2006, there were an estimated 24.9 million adults in the United States with Serious Psychological Distress.1
• An estimated 4.4 % of U.S. adults may have some form of bipolar disorder during some point in their lifetime.2
• In 2006, an estimated 22.6 million people in the U.S. (9.2% of the population age 12 or older) were substance dependent or abusive in the previous year.

Because many of the conditions causing a need for special care do not decrease life expectancy, families are seeking answers on how to provide the best quality of life for their loved ones for the rest of their lives . . . which, for a young child, could be 70 years or longer.

Are government benefits for a special needs person worth preserving? For families of modest or limited means, the answer is almost always, “Yes.” However, for more affluent families, the answer may be, “Maybe not.” In the past, many planners focused exclusively on preserving public benefits at all costs. Today, special needs planning is not necessarily “poverty planning.” The proper focus today is how to provide the best quality of life throughout the person’s lifetime. It may be better to privatize some special needs care instead of spending thousands to protect a benefit that has a low probability of being available in the future. Careful planning is necessary to craft a plan that will supplement government benefits that are worth preserving, is flexible enough to adjust to changes in future benefits, will preserve and expand assets, will make sure this person receives proper care, and may even save taxes.

For a special needs trust, the proper funding, implementation and periodic review are especially critical because it may have to last a lifetime and often cannot be replaced. Once the plan is in place, it will be need to be managed. Who should do that? The ideal trustee would:

• use discretion, acting in the best interest of the disabled beneficiary;
• understand public benefits and keep up with changes in the law;
• wisely invest and conform to all statutory fiduciary requirements;
• understand taxes;
• keep perfect books;
• provide advocacy and prevent abuse; and
• be immortal.

Since no one person can meet all of these requirements, often the most effective solution is to divide the responsibilities into areas and have a team of professionals work together. For example:

• A Corporate Fiduciary Trustee (bank or trust company) keeps perfect books; carries insurance, is bondable or has deep pockets; is immortal.
• A Care Manager uses discretion and acts in the best interest of the beneficiary; understands public benefits; provides advocacy and prevents abuse.
• A Financial Advisor invests wisely; conforms to all statutory fiduciary requirements; understands taxes.
• A lawyer skilled in special needs matters keeps up with the ever-changing laws and regulations and provides wise counsel to the family and the other team members.

Often a professional trustee will manage the funds, make distributions, prepare tax returns and keep the records, but will be directed by a Trust Advisory Committee that makes distributions, can amend the trust or replace the trustee. A care manager can be on this committee or be appointed by the committee. Another alternative is to have a trustee manage the funds but be directed by a care manager who interacts with the beneficiary. A trust protector or advisor would oversee the trustee and care manager from a distance and would be able to replace either for any reason.

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