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10 Tips for Helping Families with Special Needs

This article examines the unique planning
requirements of families with children, grandchildren or other family
members (such as parents) with special needs. There are many
misconceptions in this area that result in costly mistakes in planning
for these special needs beneficiaries. It is therefore incumbent upon us – the client’s advisors – to ensure that clients understand all of
their options.

COSTLY MISTAKE #1: Disinheriting the child.
Many disabled people rely on SSI, Medicaid or other government benefits
to provide food and shelter. Your clients may have been advised to
disinherit their disabled child – the child who needs their help most –
to protect that child’s public benefits. But these benefits rarely
provide more than basic needs. And this "solution" does not allow your
clients to help their child(ren) after the client becomes incapacitated
or is gone. When a child requires, or is likely to require,
governmental assistance to meet his or her basic needs, parents,
grandparents and others who love the child should consider establishing
a Special Needs Trust.

Planning Tip:
It is unnecessary and in fact poor planning to disinherit a
special needs child. Clients with special needs beneficiaries should
consider a Special Needs Trust to protect public benefits and care for
the child during the client’s incapacity or after the client’s death.

COSTLY MISTAKE #2:  Procrastination.
Because none of us knows when we may die or become incapacitated, it is
important that your clients plan for a beneficiary with special needs
early, just as they should for other dependents such as minor children.
However, unlike most other beneficiaries, a child with special needs
may never be able to compensate for a failure to plan. A minor
beneficiary without special needs can obtain more resources as he or
she reaches adulthood and can work to meet essential needs, but a child
with special needs may never have that ability.

Planning Tip:
Parents, grandparents, or any other loved ones of a special
needs child face unique planning challenges when it comes to that
child. This is one area where the client simply cannot afford to wait
to plan.

COSTLY MISTAKE #3:  Failure to coordinate a planning team effort.
It is critical that the advisor assisting with special needs planning
include in the planning team: an attorney who is experienced in this
planning area; a life insurance agent who can ensure that there will be
enough money to maintain the benefits for the special needs child; a
CPA who can advise on the Special Needs Trust’s tax return; an
investment advisor who can ensure that the trust fund’s resources will
last for the child’s lifetime; and any other key advisors that may
support the goals of the trust going forward.

Planning Tip:
Special needs planning dictates that the client’s
advisors work together to ensure that there are sufficient trust assets to care for the child throughout his or her lifetime.

COSTLY MISTAKE #4: Ignoring the special needs when planning for the child’s benefit.
Planning that is not designed with the child’s special needs in mind
will probably render the child ineligible for essential government
benefits. A properly designed Special Needs Trust promotes the special
needs person’s comfort and happiness without sacrificing eligibility.

Special needs can include medical and dental expenses, annual
independent check-ups, necessary or desirable equipment (for example, a
specially equipped van), training and education, insurance,
transportation, and essential dietary needs. If the trust is
sufficiently funded, the disabled person can also receive spending
money, electronic equipment & appliances, computers, vacations,
movies, payments for a companion, and other self-esteem and
quality-of-life enhancing expenses: the sorts of things your clients
now provide to their child or other special needs beneficiary.

Planning Tip:
When planning for a child with special needs, it is critical that the client utilize a Special
Needs Trust as the vehicle to pass assets to that child. Otherwise, those assets may disqualify the child from
public benefits and may be available to repay the state for the assistance provided. 

COSTLY MISTAKE #5:  Creating a "generic" special needs trust that doesn’t fit.
Even some "special needs trusts" are unnecessarily inflexible and generic.  Although an attorney with
some knowledge of the area can protect almost any trust from invalidating the child’s public benefits,
many trusts are not customized to the particular child’s needs.  Thus the child fails to receive the
benefits that the parent provided when they were alive.

Another frequent mistake occurs when the Special Needs Trust includes a "pay-back" provision rather
than allowing the remainder of the trust to go to others upon the death of the special needs child.
While these "pay-back" provisions are necessary in certain types of special needs trusts, an attorney
who knows the difference can save your clients hundreds of thousand of dollars, or more.


Planning Tip:
A Special Needs Trust should be customized to meet
the unique circumstances of the child and should be drafted by a lawyer familiar with this area of the law.

COSTLY MISTAKE #6: Failure to properly "fund" and maintain the plan.
When planning for children with special needs, it is absolutely critical that there are
sufficient assets available for the special needs beneficiary throughout his or her lifetime.
In many instances, this requires utilization of a funding vehicle that can ensure liquidity
when necessary. Oftentimes permanent life insurance is the perfect vehicle for this purpose,
particularly if the clients are young and healthy such that insurance rates are low.

Also, because this is an ever-changing area, it is also imperative that the clients
revisit their plan frequently to ensure that it continues to meet the needs of the
special needs beneficiary.

Planning Tip:
Clients should consider permanent life insurance as the funding vehicle for special needs beneficiaries, particularly
when the beneficiary is young given the often staggering costs anticipated over that beneficiary’s lifetime.

If the client may be subject to estate tax, consider having an Irrevocable Life Insurance Trust
own and be the beneficiary of the policy, naming the Special Needs Trust as a beneficiary.
Alternatively, in a non-taxable situation, consider naming the client’s revocable trust as the
beneficiary to help equalize inheritances if that is the client’s objective.

COSTLY MISTAKE #7: Choosing the wrong trustee.
During your client’s life, he or she can manage the trust.  When the client is no longer able
to serve as trustee, they can choose who will serve according to the instructions that they
have provided.  They may choose a team of advisors and/or a professional trustee.
Whomever they choose, it is crucial that the trustee is financially savvy, well-organized,
and, of course, ethical.

Planning Tip:
The trustee of a Special Needs Trust should understand the client’s objectives
and be qualified to invest the assets in a manner most likely to meet those objectives.

COSTLY MISTAKE #8:  Failing to invite contributions from others to the trust.
A key benefit of creating a Special Needs Trust now is that the beneficiary’s extended family and
friends can make gifts to the trust or remember the trust as they plan their own estates. For example,
these family members and friends can name the Special Needs Trust as the beneficiary of their own
assets in their revocable trust or will, and they can also name the Special Needs Trust as a beneficiary
of life insurance or retirement benefits.

Planning Tip:
Creating a Special Needs Trust now allows others, such as grandparents and other family
members, to name the trust as the beneficiary of their own estate planning.

COSTLY MISTAKE #9:  Relying on siblings to use their money for the child with special needs’ benefit.
Your client may be relying on their other children to provide for their child with special needs from their own inheritances. 
This can be a temporary solution for a brief time, such as during a brief incapacity if their other children are financially
secure and have money to spare. However, it is not a solution that will protect the child with special needs after your client
has died or when siblings have their own expenses and financial priorities.

What if the inheriting sibling divorces or loses a lawsuit?  His or her spouse
(or a judgment creditor) may be entitled to half of it and will likely not care for the child with special needs.
What if the sibling dies or becomes incapacitated while the child with special needs is still living?  Will his or
her heirs care for the child with special needs as thoughtfully and completely as the sibling did?

Siblings of a child with special needs often feel a great responsibility for that child and have felt so all of
their lives.  When your clients provide clear instructions and a helpful structure, they lessen the burden on all
their children and support a loving and involved relationship among them.

Planning Tip:
Relying on siblings to care for a special needs beneficiary is a short-term solution at best. A Special
Needs Trust ensures that the assets are available for the special needs beneficiary (and not the former spouse or
judgment creditor of the sibling) in a manner intended by the client.

COSTLY MISTAKE #10:  Failing to protect the child with special needs from predators.
An inheritance from parents who fund their child’s special needs trust by will rather than by revocable living trust is
in the public record. Predators are particularly attracted to vulnerable beneficiaries, such as the young and those with
limited self-protective capacities.  When you plan with trusts rather than a will, your client decides who has access to
the information about their children’s inheritance. This protects their special needs child and other family members, who
may be serving as trustees, from predators.

Planning Tip:
A Special Needs Trust created outside of a will ensures that information about the inheritance is not in the
public record, protecting the special needs beneficiary from predators.


Planning for special needs beneficiaries requires particular care
and the participation of all of the client’s wealth planning advisors.
A properly drafted and funded Special Needs Trust can ensure that the
beneficiary has sufficient assets to care for him or her, in a manner
intended by the client, throughout the beneficiary’s lifetime.

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