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Step 4: Create a Special Needs Trust:

Many families with special needs members have two fears: (1) assets set aside for their loved one will be consumed to meet medical costs or (2) having assets will disqualify that special needs individual from receiving government aid. A simple and elegant strategy for addressing both concerns is to create a Special Needs Trust, sometimes referred to as a Supplemental Needs Trust.

A special needs trust is drafted by a qualified attorney and directs the trustee not to use trust assets for any purpose that would overlap with the benefits provided by government agencies. Agency benefits usually include only the basics; food, clothing and shelter. If you take a minute to think about what you spend money on for yourself and your kids, the list includes education, entertainment, travel, transportation, hobbies and sports, to name a few. It goes well beyond the basics covered by the agency benefits, and that is the role of the special needs trust— to provide those elements that enhance life and add fun and depth to every day.

Usually, a special needs trust is funded upon the death of the parents of a special needs child. Until then, parents can provide what a child needs without gifting assets to them. Wording in the will directs any inheritance for that child to the supplemental trust rather than to them directly.

The asset threshold for disqualifying someone from receiving government aid is exceedingly low.  For supplemental security income (SSI), it is $2,000 (or $3,000 if married); for Medicaid it is about $14,500. While parents may plan to fund the trust upon their death, it is often a good practice to create the special needs trust ahead of time. That way others, such as grandparents, have an appropriate place to direct their gifts. Even a good haul from a Bar-Mitzvah can create problems, although most government programs usually kick in after the special needs individual has completed the educational programs, around age 21 or 22.

One last thought. Some clients avoid the trust structure by passing on all the assets to another child and charging them with the responsibility of taking care of their special needs sibling’s financial needs. Divorce, college financial aid, unemployment or other economic stresses can often get in the way of that being an effective strategy.

Choosing fiduciaries and setting up an appropriate structure for providing for heirs is certainly a challenge. While mistakes can have long-lasting and significant consequences, planning correctly can help avoid them.  A good and knowledgeable attorney and qualified financial professional can be invaluable guides that can help you sidestep a minefield of issues, but it is imperative that you drive the process.

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California Insurance License #: 0J12618, 0I43753

Zev Grossman Bruce Maier Aron Mestel Ainka Munroe has earned the Retirement Planning Specialist (RPS) title. The Retirement Planning Specialist title is awarded by Equitable Advisors, based upon the Financial Professional's (FP) receipt of a Certificate in Retirement Planning from the Wharton School, University of Pennsylvania. In a collaboration between the Wharton School and Equitable Advisors' affiliated life insurance carrier, coursework for the certificate was developed exclusively for Equitable Advisors FPs, and the title may be used only by FPs who have completed the required coursework and maintain the title through ongoing continuing education requirements. To verify that an FP has earned and holds the title in good standing, contact us at atretirement@equitable.com. Complaints about an Equitable Advisors FP should be directed to customer.relations@equitable.com.

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