Caring for a family member with a physical, intellectual or emotional disability can be costly. Every-day expenses can include not only food and shelter but also specialized medications, assistive devices, special education, transportation, at-home nursing care and much more. Over time, these expenses will almost certainly increase. To ensure that a loved one continues to receive the care they require long after parents or other benefactors are gone, families must engage in advanced planning.
The U.S. government provides families of all income levels with disability benefits, such as Medicaid and Supplemental Security Income, to help fund the personal and financial needs of a disabled family member. However, these entitlements can disappear if the beneficiary has income or assets that exceed $2,000. Recipients can quickly exceed this threshold when they receive even a meager inheritance or a substantial divorce or personal injury legal settlement. To avoid this scenario, families should consider developing comprehensive estate plans that aim to protect a family member’s eligibility for need-based government entitlements while also preserving assets intended to pay for that individual’s ongoing care and quality of life.
Special Needs Trusts allow families to set aside cash, real estate, life insurance proceeds or other assets to provide quality of life care to a disabled loved one without jeopardizing his or her right to receive government benefits. Neither the assets held trusts nor the income those assets generate are considered to be owned by the beneficiaries and therefore do not disqualify individuals from receiving public assistance. Moreover, when trusts make distributions directly to providers of products or services, rather than to the beneficiaries, they preserves disabled family members’ eligibility for government benefits.
Special Needs Trusts also ensure proper management of trust funds by qualified third-party trustees, who are responsible for investing trust assets and deciding when and how distributions are made. In addition, because these individuals prevent beneficiaries from accessing the trust at will, they also protect trust assets from potential fraud or misappropriation by others.
Families have options when selecting professional fiduciaries to oversee Special Needs Trusts and pay fees to, based on the trust’s size. Examples include corporate trustees affiliated with bank or trust companies, or lawyers, accountants, financial advisors or other professionals with whom the family already has an existing relationship and good rapport. Alternatively, families may choose a fellow family member to serve as trustee, as long as he or she is not a parent, spouse or other another individual who is legally required to support the beneficiary. Regardless of whom a family names as trustee, they should also engage a team of professional advisors to navigate the complex legal and financial issues that will arise with Special Needs Trusts.
After consulting with financial and legal advisors, a benefactor may choose to establish a Third-Party Special Needs Trust to hold assets for the benefit of another individual. Not only does this type of trust protect a beneficiary’s eligibility for government benefits, it may also allow the benefactor to remove assets from his or her taxable estate and essentially minimize or eliminate his or her exposure to estate and gift taxes.
Alternatively, some states, including Florida, allow families to rely on a Pooled Special Needs Trust that a non-profit charitable organization manages and maintains on behalf of the beneficiary.
Finally, a disabled individual under the age of 65 who receives government benefits may qualify to fund a Self-Settled Special Needs Trust with the assets he or she receives from a legal settlement. With this type of trust, however, the benefactor may incur tax consequences, and his or her estate may be required to reimburse the government with any trust asset remaining after his or her death.
Caring for a child or other family members with a disability can be challenging, especially when a family fails to plan and prepare early for the financial, medical and other long-term needs of a loved one. Estate planning under the guidance of experienced financial and legal professionals will go a long way toward ensuring confidence and more than adequate care and quality of life for family members challenged with disabilities.
About the Author: Lee F. Hediger is a co-founding director and chief compliance officer with Provenance Wealth Advisors, an Independent Registered Investment Advisor affiliated with Berkowitz Pollack Brant Advisors and Accountants, and a registered representative with Raymond James Financial Services. For more information, call (954) 712-8888 or email firstname.lastname@example.org.
Provenance Wealth Advisors, 515 E. Las Olas Blvd., Ft. Lauderdale, FL 33301 (954) 712-8888.
Lee F. Hediger is a registered representative of and offers securities through Raymond James Financial Services, Inc., Member FINRA/SIPC.
Raymond James is not affiliated with and does not endorse the opinions or services of Berkowitz Pollack Brant Advisors and Accountants. PWA is not a registered broker/dealer and is independent of Raymond James Financial Services. Investment Advisory Services offered through Raymond James Financial Services Advisors, Inc., and Provenance Wealth Advisors.
This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of the advisors of PWA and not necessarily those of Raymond James. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person’s situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss any tax or legal matters with the appropriate professional. Prior to making an investment decision, please consult with your financial advisor about your individual situation.