What Families Need to Know About Special Needs Trusts
As seen on The Rhode Show
According to the U.S. Census Bureau, almost one in five Americans has a disability, and for more than half of them, the disability is severe. In some cases, it stems from issues at birth or a chronic disease. In other instances, an accident delivers immediate and life-changing harm. But in all situations, the disability generates significant financial questions that must be addressed by the individual and his or her family.
A disability can eliminate or dramatically reduce a person’s earning power while generating burdensome medical costs – and that’s on top of ongoing everyday living expenses. For parents, grandparents, siblings, and any other family member or guardian who wants to provide financial support, it is critical to do so without jeopardizing the disabled loved one’s eligibility for public benefits programs.
WHY A SPECIAL NEEDS TRUST?
Having even nominal assets in a disabled person’s name will disqualify him or her from programs such as Supplemental Security Income (“SSI”) and Medicaid. Social Security currently sets the resource limit at $2,000. A Special Needs Trust (“SNT”) can eliminate the risk of such disqualification and should be used to improve the disabled individual’s standard of living. Funds in the SNT can be used to pay for a range of services that could improve the disabled individual’s daily quality of life without affecting SSI and Medicaid benefits. By no means exhaustive, the following is a list of expenditures that are believed to be permitted from a Special Needs Trust: education, wellness, housing, transportation, dental care, electronics, supplemental nursing care, and entertainment. The key is that the trustee has to make such purchases from the SNT and not to the beneficiary.
Special Needs Trusts could be an effective strategy for parents, grandparents, or relatives who want to help ensure their disabled family member will be taken care of for their entire life; for disabled individuals themselves who receive a significant settlement from an accident, medical malpractice, or other events that has caused their disability; and for disabled individuals and their families who qualify for the ABLE Savings Program.
SHORT- AND LONG-TERM SOLUTIONS FOR GRANDPARENTS
Due to the $2,000 resource limit currently available to SSI recipients, it is imperative for grandparents to be smart about any financial assistance they provide to a disabled grandchild. In the short-term, when smaller financial amounts are involved, money may simply be given directly to the minor’s parent or a guardian. For the longer-term, a Special Needs Trust can become part of an estate-planning strategy, with an inheritance or insurance policy payout funding the trust after the grandparent’s death or even during their lives.
PRESERVING LEGAL SETTLEMENTS AND GOVERNMENT BENEFITS
Special Needs Trusts are an effective tool to maximize a large settlement award, as well as, the victim’s public benefits. While several trust options are available for such cases, all of them must be irrevocable and overseen by a trustee. Trusts can be designed to ensure they meet the specifications of the government benefits program to which the disabled person is entitled.
HELPING FAMILIES SAVE: THE ABLE PROGRAM
The ABLE (Achieving a Better Life Experience) Program lets disabled persons and their families save for future disability-related expenses in a tax-advantaged savings plan without sacrificing critical benefits. Contributions, including those from family and friends, currently total as much as $14,000 annually without impacting SSI, Medicaid, and other federal programs.
ENLIST THE EXPERTS
Given the technicalities involved with setting up and administering Special Needs Trusts, families are encouraged to consult with an attorney who specializes in this area of law to determine whether a Special Needs Trust is appropriate for your unique situation. In the case of large trusts, the attorney may recommend a corporate trustee, such as a bank or other financial institution. Washington Trust has worked with Special Needs Trusts for many years and has teamed with families and their attorneys to help ensure the needs of a disabled loved one are met in accordance with the family and disabled individual’s wishes.
Investing entails risk, including the possible loss of principal. Past performance does not guarantee future results. This information does not take into account any investor’s particular investment objectives, strategies, tax status, or investment horizon.
The opinions expressed in this blog are those of the author and may not reflect those of Washington Trust Wealth Management. The information in this report has been obtained from sources believed to be reliable, but its accuracy and completeness are not guaranteed. Any opinions expressed herein are subject to change at any time without notice. Any person relying upon this information shall be solely responsible for the consequences of such reliance. Performance is historical and does not guarantee future results.
Such information does not constitute legal or professional advice as all situations are unique and are based on individual facts and circumstances.
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