Estate Plan, Option #3
Government and Special Needs Trust

This may be the best plan for the family. Using a special needs trust in an estate plan can help accomplish a number of goals and may be the best solution to the long-term needs of the entire family. A carefully structured trust may provide security for the special needs family member while allowing the family member to qualify for government benefits. This plan provides the family with maximum flexibility, which allows the new primary caregivers to take those actions necessary for the individual's social, emotional, physical and financial needs.

Special Needs: Planning Considerations

A special needs person cannot have income or assets. To participate in government programs, a special needs person must not have any significant income or resources. Parents cannot give a special needs beneficiary or a child's guardian any direct control over estate assets.

A special needs trust can provide additional care. Generally, parents want their special needs child to receive a level of care superior to the level administered in government programs alone. In a special needs trust, the trustee is instructed (via the trust instrument) to provide for their child's special needs beyond that offered in a government program.

A trust is simply a device for holding, managing and distributing property. A trust is a traditional means of managing property for beneficiaries who are unable accept the responsibility for themselves. A special needs trust is designed to prevent inclusion of trust assets or payments in the government's means test.

In a special needs trust, the trustee is not required to expend any funds. The trustee holds the sole discretion over whether (and when) trust assets will be distributed for care. The trustee is even authorized to accumulate income if distributions are not currently needed. In addition to the discretionary power, the trustee is given instructions as to which expenditures the caregivers feel are most appropriate.

Government and charitable programs provide primary care. The special needs trust is intended to serve as a "supplement" to public assistance by providing "extras," such as additional clothing, travel opportunities and medical choices. Where a government program might provide only enough funds for the individual to receive one type of rehabilitative therapy, funds in a special needs trust can defray the cost of a more advanced facility. Where a government program might provide one level of medical care, a special needs trust can defray the cost of more aggressive treatment. The possibilities are endless.

State Law Controls

The benefit of a special needs trust depends upon state law. You need an experienced, local counsel. States may protect special needs trusts from federal and state government claims. Asset protection and government benefits may be protected for a lifetime, although states may require a "payback" provision in the trust. A payback provision requires that the government be reimbursed for services before distributions can be made to other trust beneficiaries.

Funding a Special Needs Trust

1. How much is needed in the trust for the continued financial support of a special needs family member?

• Take the average life span and add a cushion.
• Consider how much costs will increase when primary caregivers pass away?
• Costs change over years so review annually.

In a special needs trust, the trustee is instructed (via the trust instrument) to provide for the child's special needs beyond that offered in a government program.

2. How can these funds be made available and delivered to the trust at the death of the parents?

• Life Insurance proceeds can fund a trust at death.
• Estate plans with life insurance allow bequests to other family members.
• Death benefits to the trust should be income and estate tax free.

3. How can funds be provided to other family members?
Types of policies to review include:

• Ordinary Single Life Coverage
• Second-to-Die Protection
  
  Include your life insurance professional along with your other advisors in any decisions.

Selection and Responsibilities of a Trustee

Choosing the appropriate trustee is vital. He or she will make judgments about care and financial management. Sometimes more than one trustee is selected with one trustee to manage the trust assets and another to serve as the beneficiary's advocate.

The individual trustee, in particular, should be acquainted with the beneficiary's skills and needs. If a special needs person is in a group home, for example, the trustee should visit the facility several times a year to determine the quality of care and the progress being made. The trust instrument itself should require the trustee to make at least an annual evaluation of the beneficiary's physical and emotional condition, educational programs, work opportunities, and social needs. If the trust distribution language is drafted broadly enough, the trustee will be able to participate in new programs and treatments for their particular, special need.