For the parents of a special needs child, ensuring lifetime comfort and care can seem like a bit of a financial catch-22. In order to qualify for government benefits, including Medicaid, the special needs individual can have only limited income and assets. But the government benefits alone don’t provide enough to live on comfortably.
That’s where a special needs trust comes in, helping cover not only medical expenses and caregiving costs, but also travel, education, entertainment, pet care as well as many other things things that can maintain and enhance the quality of life for a special needs individual.
Special needs trusts, however, have no value until they’ve been funded. And deciding how to fund the trust is a challenge of its own—one that requires professional guidance to avoid errors or even disastrous financial missteps.
How Do You Fund a Special Needs Trust?
Parents of a special needs individual will likely open a third-party trust. However, it’s worth noting that if the special needs individual has independent assets, including any personal injury settlements, those will need to go into a first-party special needs trust.
With a third-party trust, the entire family can help out. In fact, it’s important that grandparents, aunts, uncles and other relatives and friends understand that major gifts and inheritances should go in the trust, not directly to the special needs individual.
When funding a third-party special needs trust, parents, other family members and friends can include:
- Checking, savings, money market, and investment accounts. If you also hold CDs, check with your financial institution to be sure they can be retitled to the trust without penalty prior to maturity.
- Retirement accounts. While you can’t transfer the ownership of an IRA or 401(k) while the owner is alive, the account owner can name the trust as the beneficiary. And with the recent changes to distribution rules for inherited IRAs under the SECURE Act of 2019, a trust for a child with special needs may be the most tax-efficient possible beneficiary for a retirement account.
- Real estate. The family home is often a place of familiarity and security for a family with a special needs child, as well as a major investment. If the property is sold or rented, proceeds benefit the trust. If the special needs child passes away before siblings or other beneficiaries, the property can be transferred from the trust. If you plan to continue housing a special needs child in the family home, be sure that there are also enough funds in the trust for upkeep of the property.
- Insurance. Life insurance payouts can benefit a special needs trust, providing lasting income for a beneficiary. It helps to be savvy with policies, however. Some families choose survivorship policies, which are often more cost-effective as they only begin payments after the death of both members of a married couple.
How to Plan
It takes careful consideration and individualized focus to set up and fund a special needs trust properly. Even then, families can expect to regularly update and adjust their funding plan as their investment profile changes over the years. A special needs lawyer can help establish a trust and provide regular feedback, as well as connect clients to trusted financial planners for advice on how much to put aside.
Speak With an Atlanta Special Needs Lawyer
If you’re the parent or loved one of an individual with special needs, you’ll want help protecting his or her financial future. At Nadler Biernath, we have experience creating and funding trusts. Call us today at 770-999-9799 to schedule your initial consultation to discuss how we can help your loved ones.