Financing for Those with Lifelong Special Needs

By Deborah Jeanne Sergeant

It costs a lot to care for a child with special needs, especially if the child is unable to earn a full-time living as an adult. Just setting aside money isn’t always the best option.

Area experts recommend a special needs trust, formally known as a supplemental needs trusts. A special needs trust can be a stand-alone piece or part of a parent’s will that takes effect after death, they say.

Three types of trusts may help. The first party special needs trust involves money that is paid directly to the person with special needs, such as someone disabled in a car accident who receives a settlement. That individual (or someone legally acting on his behalf) sets up the trust and it protects their government benefits. Any funds the person doesn’t use in his life goes to the government to reimburse for any care provided. Any money left over reverts to the beneficiary who had been designated by the person with disabilities.

Parents, grandparents, siblings, or anyone else can set up and fund a third party special needs trust for the person with disabilities, but not the person himself. People can fund this trust directly, with life insurance benefits upon their death, or with money-making assets such as rental real estate and investments.

Once the person with disabilities dies, any money left reverts to the family.

Cynthia Turoski, CPA and managing member of Bonadio Wealth Advisors LLC, said that a special needs trust protects people with special needs.

Turoski said that leaving extra money for one of their other children to care for the child with disabilities is short-sighted. Divorce, lawsuit or mismanagement can sap those funds.

Bonadio Wealth Advisors, LLC is a member of The Bonadio Group and operates offices in Rochester and other New York locations. Turoski is also a certified financial planner with the group.

Just saving up money in the child’s account won’t work, either. Keeping more than $2,000 in a savings account in the child’s name disqualifies him from the Supplemental Security Income program. A special needs trust safeguards access to benefits and prevents misuse of money that should be used for life enhancement.

“A trust doesn’t replace what the government provides, like money for food or housing,” Turoski said. “The trust can go above that housing and food to give a better quality of life like go on trips or going out to dinner occasionally.”

Home modifications to make the person’s life better may also qualify for the use of their trust funds.

The trustee responsible for disbursing funds can be a designated family member or a corporate trustee, an outside person employed by fees paid from the trust fund.

“There are legal ramifications if they misused the trust,” Turoski said. “It can’t be addressed lightly. It’s someone that can get professional guidance.”

A family may also appoint co-trustees so that the corporate trustee and the family member work together.

Trustees can change the form of the trust fund. For example, if the investment isn’t working out well, he could move the funds to a CD, stocks, real estate or other asset, “as long as it enabled you to fulfill the objectives of the trust: to provide for the beneficiary,” said Patrick D. Lydon, attorney with Sutter, Summers & Lydon, P.C. in Webster.

He said that it’s very easy to include special needs trust language in final planning documents such as a will or trust to make it enforceable.

“Verbal gentleman’s agreements are very difficult to enforce,” Lydon said.

Doug Parker, certified financial planner and senior vice president at Sage Rutty, Inc. in Rochester, said that parents of a child with special needs “often are not prepared for the situation they are in,” he said.

He urges clients to follow through on their planned steps to protect the comfort of their loved ones.

Parker estimated that the greatest percent of wills drafted aren’t signed and many people delay because they have a few questions to answer that they neglect.

“I can’t tell you the number of times I’ve met with clients who have no will or have not updated it, have not signed it or don’t have it properly endorsed,” he said. “You have to make your intentions clear and make it easy for those who have to distribute your estate.”

He prefers clients to assign co-trustees, since the family trustee may not be capable of serving in the future if the trust isn’t implemented for a long time. Plus, corporate trustees better understand the mechanics of the trust and will implement them properly.