Estate Planning: A Special Trust for Special Needs Children – Kiplinger’s Personal Finance

Like many parents with a disabled child, Lisa Bamburg worried about how her son, Joel, who has severe autism, would survive when she was no longer alive to support him. Bamburg, co-owner of Insurance Advantage and LMA Financial Services in Jacksonville, Ark., knew that leaving money directly to Joel to provide for his care could jeopardize his ability to receive any help from means-tested government programs like Social Security’s Supplemental Security Income and Medicaid. Typically, beneficiaries of either program can only have, at most, assets of a few thousand dollars, with the specific amount varying by state. That financial help isn’t nearly enough to live on. “Joel receives $700 a month from SSI. If he didn’t live with me, he couldn’t make it on that,” says Bamburg.

So 13 years ago, Bamburg set up a special needs trust for Joel, who is now 25. “The trust will provide for Joel when I’m no longer around to take care of him,” she says. Because the SNT owns the assets instead of Joel, they are excluded from asset limit tests for SSI or Medicaid. Meanwhile, the trust can help fund quality-of-life improvements for the beneficiary, such as a phone, a trip or a private room in a group care facility. Medicaid typically only pays for a semiprivate room. The SNT is also a way to ensure that a vulnerable family member gets the money and that other relatives, such as the siblings of the disabled person, aren’t left with the responsibility and cost of that care.

Interest in special needs trusts has been growing, says Kelly Piacenti, a chartered special needs consultant and head of MassMutual’s SpecialCare program, which addresses the financial needs of people with disabilities. “In the past, people with serious disabilities often wouldn’t outlive their parents. Now they’re living full, rich lives.” SNTs, however, come with specific rules for who can qualify for them and how the earnings are taxed, which can determine when these trusts are worth using.

What Counts as a Special Need

A special needs trust can only be established for someone younger than age 65 and is meant for an individual with a physical or mental disability so severe that the person cannot work and needs ongoing support from Medicaid and Social Security. A disabled person who can still work could earn too much to receive government support, negating the need for this type of trust.

Bamburg notes that there’s no national standard for regulating SNTs and every state has different guidelines for who can use one, with some requiring that a medical professional verify the trust beneficiary’s disability. “For Joel, it was not easy,” she says. “Even though we had school documentation of his disability and statements from his doctor, he …….


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