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10 Tips for Helping Families with Special Needs

This month’s newsletter 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 special needs beneficiaries. It is, therefore, incumbent upon us –
our clients’ advisors – to ensure that clients understand all of their

COSTLY MISTAKE #1: Disinheriting the special needs

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 special needs beneficiaries – beneficiaries who need
their help most – to protect those beneficiaries’ public benefits. But these
benefits rarely provide more than basic needs. And this solution does not allow
your clients to help their special needs beneficiaries after the clients become
incapacitated or are gone. When a loved one requires, or is likely to require,
governmental assistance to meet his or her basic needs, parents, grandparents
and others should consider establishing a Special Needs Trust.

It is unnecessary and in fact poor planning to disinherit special
needs beneficiaries. Clients with special needs beneficiaries should consider a
Special Needs Trust to protect public benefits and care for those beneficiaries
during their own incapacity or after their death.

#2: Procrastinating.

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, special needs beneficiaries
may never be able to compensate for a failure to plan. Minor beneficiaries
without special needs can obtain more resources as they reach adulthood and can
work to meet essential needs, but special needs beneficiaries may never have
that ability.

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

#3: Failing to coordinate a planning team effort.

It is critical
that advisors 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 help ensure that the trust fund’s
resources will last for the special needs beneficiary’s lifetime; and any other
key advisors that may support the goals of the trust going forward.

Special needs planning dictates that clients’ advisors work
together to ensure that there are sufficient trust assets to care for special
needs beneficiaries throughout their lifetime.

MISTAKE #4: Ignoring the special needs when planning for a special needs

Planning that is not designed with the beneficiary’s
special needs in mind will probably render the beneficiary ineligible for
essential government benefits. A properly designed Special Needs Trust promotes
the special needs person’s comfort and happiness without sacrificing

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.

When planning for a beneficiary with special needs, it is critical
that clients utilize a Special Needs Trust as the vehicle to pass assets to that
beneficiary. Otherwise, those assets may disqualify the beneficiary 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 beneficiary’s public benefits,
many trusts are not customized to the particular beneficiary’s needs. Thus the
beneficiary fails to receive the benefits that the parents or others 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 beneficiary. 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.

A Special Needs Trust should be customized to meet the unique
circumstances of the special needs beneficiary and should be drafted by a lawyer
familiar with this area of the law.

Failing to properly fund and maintain the plan.

When planning for a
beneficiary 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 for young and healthy clients
while insurance rates are low.

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

Clients should consider permanent life insurance as the funding
vehicle for special needs beneficiaries, particularly with young beneficiaries
given the often staggering costs anticipated over their lifetime.

clients 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
their revocable trust as the beneficiary to help equalize inheritances.

COSTLY MISTAKE #7: Choosing the wrong

Clients can manage the trust while alive and well. Once
they are no longer able to serve as trustee, clients can choose who will serve
according to the instructions they provide. Clients 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.

The trustee of a Special Needs Trust should understand the client
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.

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 benefit of a special needs

Many clients rely on their other children to provide, from
their own inheritances, for a child with special needs. 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 a child with special needs after your clients have
died or when siblings have their own expenses and financial

What if an 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 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.

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 a sibling) in a manner intended by the

COSTLY MISTAKE #10: Failing to protect the special
needs beneficiary from predators.

An inheritance that funds a
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. By planning
with trusts rather than a will, clients decide who has access to the information
about the transfer of their property. This protects their special needs child
and other family members, who may be serving as trustees, from predators.

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

Planning for special
needs beneficiaries requires particular care and the participation of all of the
clients’ wealth planning advisors. A properly drafted and funded Special Needs
Trust can ensure that special needs beneficiaries have sufficient assets to care
for them, in a manner intended by their loved ones, throughout the
beneficiaries’ lifetime.

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