Everything you need to know about special needs trusts, from how much it costs to finding help

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Special needs trusts are essential to the well-being of a person with special needs, experts say.

“The number one reason for a special needs trust is that people with special needs are often unable to make appropriate financial decisions for themselves and/or are at risk of financial exploitation by others,” said the certified financial planner Mike Walther, founder of Oak Wealth Advisors in Northbrook, Illinois.

Equally important, according to Charles Italiano, associate director of Westchester Disabled On the Move in Yonkers, New York, “is entitlement to public benefits such as [Supplemental Security Income] and Medicaid and enable children with special needs to lead fulfilling lives.”

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Why do many people with special needs have to depend on government support?

Because the cost of care can be astronomical, said Michael Beloff, Partner and Chartered Special Needs Consultant at Belvedere Wealth Partners in Stamford, Connecticut.

For example, day care services for a severely disabled person can cost more than $100,000 a year, while a group home in the Northeast can cost anywhere from $140,000 to $300,000 a year, he said.

“Depending on the nature of the individual’s impairment, most families cannot afford to fund these services out of their own pockets during their lifetime and after their death,” he said. “This is where Medicaid comes in.”

Because SSI and Medicaid recipients are allowed limited income and only $2,000 in liquid assets, it is imperative that families place assets in special needs trusts to ensure their loved ones do not receive this life-saving financial assistance from the government to lose.

Special needs foundations should be created once the child has a special needs diagnosis, Walther said.

Two types of trusts

There are two types of special needs trusts. Ideally, according to Italiano, you need both.

• Third party: “This type of trust is funded solely for the needs of the child with the parents’ money and will never be in the child’s name,” Italiano said. “After the death of the parents, the funds go to someone other than the child.”

These are most often funded with insurance and funds from the parents’ estate, and can be set up without funds initially, Beloff said.

Once funded, the trust will have its own tax identification number and its own tax return must be filed. These funds are intended to cover expenses not covered by Medicaid or SSI, such as travel, clothing, computers, etc.

Be aware of conflicts of interest when the trustee is also the beneficial owner.

Michael Below

Chartered Special Needs Consultant at Belvedere Wealth Partners

“It’s a way of ensuring that the money is there and is being monitored by a qualified trustee such as a family member, friend, or an outside party such as a bank or nonprofit,” Beloff said. “Be aware of conflicts of interest when the trustee is also the ultimate beneficiary.”

It’s important to let other family members know that they should make gifts or bequests to the trust to avoid adversely affecting the special child’s eligibility for Medicaid, said attorney Ray Falcon, director of the Falcon Law Group in Woodcliff Lake, New Jersey .

• First Party: This trust is created with the individual’s own assets to protect any income, whether earned or inherited, to stay within Medicaid income and asset limits. Distributions must be approved by the trustee, Italiano explained.

“This type of trust may have a payback provision such that any funds remaining after each pass is used to pay back accumulated Medicaid expenses,” he said.

cooperation with lawyers

The cost of setting up special needs trusts varies in different parts of the US, but attaching them to a general estate plan can add $2,000 to $6,000 depending on the complexity.

Parents should work with experienced attorneys for special needs planning, particularly because incorrect language can disqualify a trust, Walther said.

Falcon recommended questions for prospective attorneys. “You should ask a prospective attorney, ‘How many trusts have you written?’ and ‘Have your trusts been reviewed and approved by Social Security and Medicaid in my state?'”

Reputable sources for finding specialist attorneys and planners include the Academy of Special Needs Planners and the Special Needs Alliance.

https://www.cnbc.com/2022/05/21/what-to-know-about-special-needs-trusts-from-costs-to-finding-help.html Everything you need to know about special needs trusts, from how much it costs to finding help

Gary B. Graves

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