Special Needs Trusts

We are now the proud owners of a 3-inch black binder, neatly and nicely assembled, with a title page that says "Estate Planning Portfolio for Anne and Eric."  Thanks to our attorney, the binder is stuffed with our wills, financial documentation, files, communications and a CD that contains all of our banking and investment information and plans for our children. It also includes something known as a Special Needs Trust for Fickle Fan. It's a Major Step (capital letters) down the transition road, and one that I've avoided taking with every fiber of my being.  

Forewarning here:  I have absolutely no expertise in financial planning or the laws that go with it. I'll share our story and concerns here, and if that helps you take action, great!  But I'm not advising you to do exactly what we've done--do the research (talk to the Arc of Indiana--I've included the link, below) or an attorney.


Now that I can mark that one off the transition checklist, yes, I feel a sense of satisfaction and more responsible as a parent.  I won't feel quite so much as if I'm leaving my children in the lurch every time my husband and I are in an airplane together without them (which is amusing, in that it's happened all of twice that I can think of in their 21 and 18 years of existence--we don't live near family and finding someone willing and able to take on our kids, even for a weekend, has never been easy).  But the whole planning-for-their-future thing still makes me a little queasy because it's tied to the b word ("benefits"--we'll whisper it for now.)


So, other than the gut-wrenching who-will-care-for-them question, why, exactly, do you need a plan and a special needs trust rather than just a will? Maybe you have a kind, wealthy relative. Could you leave it up to them?  No. No. and No. Our children (mine and yours) will most likely need life-long services to support them, and in the majority of cases that means they'll need to be on federal benefits--Medicaid, Medicaid Waiver and/or Supplemental Security Income (SSI). There. I've said it. But couldn't you just pay for it yourself?  Maybe, for a short time; but it's not likely for a lifetime (yours AND your child's, mind you). Also, depending upon the state where you live, your child may not even be eligible for some services like housing programs, job training, and health care if they aren't receiving benefits. That's because the agencies that provide those services get reimbursed through benefit programs; there isn't always an out-of-pocket option available even if you could afford it.  


Services are connected to benefits, which are tied to your young adult son or daughter's income--essentially meaning they need to stay somewhat impoverished. An influx of income (from an inheritance or lottery winnings or a gift from a wealthy relative) can torpedo the support scaffolding you've so carefully put in place for your child. Oh no! In that event they would need to "spend down their income" (a nasty phrase) just as some senior citizens need to do to qualify for long-term care services. Services may need to be suspended until your child has spent the new funds to the point where they're again within federal benefit levels.


A special needs trust protects the services scaffolding and allows your adult child to remain eligible for benefits.  But benefits will only pay for things like housing, food and medical care. What about that vacation to Canada, a new microwave, a backyard grill, birthday gifts for Uncle Moe, Saturday dinners at Red Lobster, movie tickets, a must-have Indiana Colts jersey?  That's where the special needs trust comes in. Let's face it: You're handling all of that now.  When you die, the special needs trust and the person you've appointed to oversee the trust will ensure that your child is still able to buy dog food for Rover, take ukulele lessons, and  pay the cell phone bill.  You get the picture.  Without a special needs trust, our son FF would get food, health care and shelter. That's it. With a special needs trust he has a much better chance at living a life he'll enjoy.


So, yes, for us this was a monumental challenge, fraught with complexities:

• Our children have varying challenges that impact their strengths, challenges, and potentials.  
• We aren't millionaires and aren't expecting to win the lottery anytime soon.
• We're forced to take a wild stab at what their financial needs will be and, with that, what their capabilities might be. Will they be able to work full-time jobs?  Will they graduate from college?  
• We've fought hard all their lives to help them be independent and then we set up a trust--a sort of financial safety net for them.
• All of our family members have problems of their own. Setting up an estate plan means establishing a will, which means we have to make that decision. The big one. Who can possibly care for them, advocate for them, smooth the wrinkles from their lives as we've done when we're gone?  
• My husband lives in one state, we live in Hoosierland, most of our relatives live in another state.

Here's what I've learned in this process.  

• The plan is flexible.  As their lives change, so can the plan.
• We don't need to be millionaires (although that would certainly help).  A special needs trust can be funded upon your death with a life insurance policy that establishes the trust as the beneficiary. Trusts do cost money, however; there's usually a one-time enrollment fee, plus maintenance or consulting fees, and tax preparation fees once the trust is funded.  
• Thoughtful, wealthy relatives can still provide funds to your child, but they need to give the money to the special needs trust, and as embarrassing as it may be, you may need to  explain that to them in a letter.  
• The Arc of Indiana's Master Trust webpage is an invaluable source of information on trusts. You can set up a trust for your loved one through the Arc, which is respected, trusted and less expensive. We ultimately opted to go with a private attorney because of the potential three-state complexity of our situation.  Even so, the Arc's resources and expertise were very helpful to us. Melissa Justice of the Arc does trust presentations throughout the state, and there are upcoming presentations in Gary, LaFayette, Indianapolis, and Bloomington. Go, listen, ask questions--even if your child is very young!
• Though the reality is that FF may be dependent on state and federal benefits, the special needs trust will help to ensure his independence when we pass away. 
• Planning needs to extend beyond our generation. Appointing siblings as guardians or trust managers may be a good option now, but what about when they're in their 70s or 80s?  It's good to have a back-up plan in place. (Nieces and nephews?)
• It helps to have a spouse like mine, who's not only good at but really enjoys the bean counting aspect of retirement planning.

So I feel better. We still need to do some pow-wows with family to let them know what to expect. Still makes me squirm.

Next up, we'll deal with guardianship, another Major Step. Happy planning, everyone.  .