Does one of your clients have a special needs child? Are you starting to plan yourself for a special needs child? Jeffrey Levine details 3 tips you should follow when planning for a special needs child.
1) Consider Naming a Supplemental Needs Trust
If you are planning to leave assets to a child or other beneficiary with special needs, one of the first things you should consider is the use of a supplemental needs trust. These trusts, commonly known as special needs trusts, serve a very important purpose. They help to provide for an individual with special needs without impacting any federal or state benefits they may be receiving.
Many of the benefits special needs beneficiaries typically receive, such as Supplemental Security Income (SSI) and Medicaid, are needs based. That means that if a special needs person has too much in the way of assets and/or income, they may not qualify for those programs and would lose out on their benefits. This may not be an issue for your special needs beneficiary now, but it could become one if you leave your assets outright to them. If such an event occurs, the special needs beneficiary would likely go from qualifying for various state and federal benefits, to being excluded from those programs.
Note: If you leave assets outright to a special needs beneficiary, they can transfer those assets to a special needs trust for their own benefit, but for reasons beyond the scope of this article, that is generally not as favorable as leaving the assets directly to the trust.
If on the other hand, you name a special needs trust as the beneficiary of your assets, that trust can be set up to help maintain your special needs child’s standard of living by paying for certain expenses without impacting government benefits. Since the assets of the special needs trust will not be considered assets of the trust beneficiary – even though its assets are used for their benefit – needs-based government benefits, like SSI, will be unaffected.
2) Plan early so that children will qualify for SSI
As noted above, SSI is a needs-based program. That’s fairly well known. What is less well known, however, is that until a special needs child reaches the age of 18, there is something known as parental deeming. Essentially, parental deeming is just a fancy way of saying that your assets and income are counted as that of your child. So, typically speaking, your special needs child will not qualify for SSI any sooner than 18. After 18, however, only their own assets and income count.
That’s good, but there is another potential complication to plan for if you want to make sure your special needs child will qualify for SSI. There is a three year look-back when determining eligibility. As such, 14 actually becomes a key planning age for such individuals. In order to qualify for SSI at 18, the special needs child may need to give away (either to a special needs trust or elsewhere) virtually all of their assets before they reach age 15. This way, the three year look-back has no impact at 18. Perhaps your special needs child doesn’t really have any assets, in which case this may not be a big problem. In other cases, such as if your special needs child has been awarded a large judgment due to an accident or other issue, it may be of significant concern.
SSI is not, by any means, going to be a life altering stream of income. Your special needs child might receive $700 a month from the program at today’s rates, but you know what, every dollar counts, right? Why pass on that monthly check if you don’t have to? You may also want to check out your state’s Medicaid rules, as parental deeming for those benefits may end at a different age, such as 21.
3) Take Care of Your Own Planning First
This may seem counter-intuitive at first, after all, if you spend less money on yourself, doesn’t that mean you have more left over to benefit a special needs child after your death? Not necessarily. One of the most important aspects of making sure you can successfully plan for a special needs beneficiary is making sure your own house is in order first.
I happen to be writing this post from an airplane, and if you’ve traveled by plane at all recently, you know the drill. Before you take off, you have to watch the flight attendants’ safety demonstration or a video covering the same items. You’ve no doubt heard the “Be sure to place your own mask on your face before assisting others” line. It may sound incomprehensible that, if such a situation presented itself, you would look to protect yourself before a young child, but the reasoning behind that instruction is clear. If you can’t help yourself, you’re in no shape to help anyone else either. The same is true when planning for a special needs beneficiary.
Long-term care, for instance, is one of the most important items you may wish to address. You might have a million dollars or more earmarked for your special needs child, but if you or your spouse find yourselves needing special care of your own for an extended period of time, that million dollars can quickly erode. Long-term care, in some places in the U.S. can run upwards of $100,000 annually. Taking that amount of money out of your IRA or other investments on an after-tax basis can quickly reduce any nest-egg you planned to leave over. So make sure that you don’t skip over your own planning and leave your special needs planning vulnerable.
One final piece of advice: planning for a special needs beneficiary can be incredibly complex, so it’s generally best to consult with a knowledgeable attorney in your state who specializes in this area.
- By Jeffrey Levine and Jared Trexler