Life Insurance and the Special Needs Trust

Posted by Patty Manko on Thu, Jul 24, 2014 @ 04:43 PM

Special Needs Trusts resized 600The establishment of a special needs trust can provide a false sense of security that you are all set. 

The money that funds the trust will secure the resources for your loved one to be cared for.

 

What is a special needs trust?

A Special Needs Trust (SNT) is a legal document and a very important part of your child's long-term financial plan.

The trust may be used to hold money:

  • that you save
  • that others give your child as gifts
  • that you receive from an insurance settlement

Funds in the SNT will not interfere with your child's eligibility for federal benefits like Medicaid and Supplemental Security Income (SSI).

Who are the parties involved?

The individual who funds the trust is the Donor. The individual who benefits from the trust is the Beneficiary. The individual who oversees the trust is the Trustee

Regardless of the timing decision for funding the trust, it is important to do whatever you can to makes sure there will be adequate money in the trust to provide for your child’s security.

There are two steps:

  •  identify what the anticipated needs will be
  •  assess what steps you can realistically take to provide what is  necessary in light of your other financial requirements and goals.

Special Considerations for Life Insurance in Special Needs Planning

The use of life insurance in special needs planning is somewhat different than in traditional planning . It is critical to plan for the financial problem of one of the most catastrophic events in life; a parent’s death.

In planning for a traditional family, often the largest amount of life insurance protection is purchased for the wage-earning parent.  Following this same strategy is one of the most common errors a family with special needs tends to make.  One cannot assume there is no financial value lost in the event of death of the primary caregiving parent.  Although it is difficult to place a financial value on the parent that does not work outside of the home, or provide the majority of the income to the family, it is critical to account for this value.  This often means that you have to look at each parent to determine the human life value.  This is ultimately converted to a dollar value to determine the life insurance protection needed.  

Income Replacement:

In the traditional planning model, the amount of life insurance needed is often simplified to be a function of the annual income. For example, to determine the life insurance need of a wage earner, a simple technique is to multiply your annual earnings by 5 or 10 times or the number of years you want to ensure that income for your family is continued.  This means tht if you earn $100,000 per year, you should have from $500,000 to $1,000,000 of life insurance protection.  A more detailed approach would be to complete a capital needs analysis. This is the analysis that most life insurance professionals and financial planners use.  This calculation involves determining the present value of money needed to pay for short-mid-and long-term goals a family identiifies. For families with special needs, insurance coverage requirements often extend well beyond the traditional family's timeline fo having enough money to support children through their school years.  Special needs planning requires planning for two generations, anticipating a possible need to support the child with disabilities beyond the school years and throughout his or her life.

In special needs planning, the first step in determining life insurance needs is to determine the loss of income to the household with the death of a parent. Next it is important to identify the expenses that will continue upon the death of that parent, particularly money needed to address future family goals. Looking at income alone can be misleading because variations in saving and spending affect planning.  In the event that a family spends a larger percentage of their monthly income, they have two options:1. to insure for this larger amount to maintain the family lifestyle, or 2.to anticipate lifestyle changes required by the family due to a decrease in income after the death of a parent.  For families who are diligent at saving for their future – for retirement, education, supplemental needs, etc. – a loss of income may prevent the ability to maintain this saving pattern.  Families must address issues of both current spending to maintain their lifestyle and their savings and investments for the future. 

The other common error in purchasing life insurance is buying only term life insurance.  Term insurance is life insurance that is designed to last for a predetermined number of years, such as 5,10, 20 or possibly 30 years if applied for at an early age. Term insurance works in the event that the need for protection is for only a temporary period of time. In special needs planning, the “need” is not temporary – it is permanent. As we have discussed, the need to address that second generation of financial issues comes into play once again.  There may be a need for permanent life insurance protection, rather than term life insurance that only lasts until the children have grown in 20 years.  A recommended strategy is to acquire a combination of both term and permanent insurance.

Tags: Special Needs Trusts

Life Insurance and the Special Needs Trust

Posted by Patty Manko on Thu, May 01, 2014 @ 02:27 PM

Special Needs Trusts resized 600The establishment of a special needs trust can provide a false sense of security that you are all set. 

The money that funds the trust will secure the resources for your loved one to be cared for.

What is a special needs trust?

A Special Needs Trust (SNT) is a legal document and a very important part of your child's long-term financial plan.

The trust may be used to hold money:

  • that you save
  • that others give your child as gifts
  • that you receive from an insurance settlement

Funds in the SNT will not interfere with your child's eligibility for federal benefits like Medicaid and Supplemental Security Income (SSI).

Who are the parties involved?

The individual who funds the trust is the Donor. The individual who benefits from the trust is the Beneficiary. The individual who oversees the trust is the Trustee

Regardless of the timing decision for funding the trust, it is important to do whatever you can to makes sure there will be adequate money in the trust to provide for your child’s security. There are two steps:

  •  identify what the anticipated needs will be
  •  assess what steps you can realistically take to provide what is  necessary in light of your other financial requirements and goals.

Special Considerations for Life Insurance in Special Needs Planning

The use of life insurance in special needs planning is somewhat different than in traditional planning . It is critical to plan for the financial problem of one of the most catastrophic events in life; a parent’s death.

In planning for a traditional family, often the largest amount of life insurance protection is purchased for the wage-earning parent.  Following this same strategy is one of the most common errors a family with special needs tends to make.  One cannot assume there is no financial value lost in the event of death of the primary caregiving parent.  Although it is difficult to place a financial value on the parent that does not work outside of the home, or provide the majority of the income to the family, it is critical to account for this value.  This often means that you have to look at each parent to determine the human life value.  This is ultimately converted to a dollar value to determine the life insurance protection needed.  

Income Replacement:

In the traditional planning model, the amount of life insurance needed is often simplified to be a function of the annual income. For example, to determine the life insurance need of a wage earner, a simple technique is to multiply your annual earnings by 5 or 10 times or the number of years you want to ensure that income for your family is continued.  This means tht if you earn $100,000 per year, you should have from $500,000 to $1,000,000 of life insurance protection.  A more detailed approach would be to complete a capital needs analysis. This is the analysis that most life insurance professionals and financial planners use.  This calculation involves determining the present value of money needed to pay for short-mid-and long-term goals a family identiifies. For families with special needs, insurance coverage requirements often extend well beyond the traditional family's timeline fo having enough money to support children through their school years.  Special needs planning requires planning for two generations, anticipating a possible need to support the child with disabilities beyond the school years and throughout his or her life.

In special needs planning, the first step in determining life insurance needs is to determine the loss of income to the household with the death of a parent. Next it is important to identify the expenses that will continue upon the death of that parent, particularly money needed to address future family goals. Looking at income alone can be misleading because variations in saving and spending affect planning.  In the event that a family spends a larger percentage of their monthly income, they have two options:1. to insure for this larger amount to maintain the family lifestyle, or 2.to anticipate lifestyle changes required by the family due to a decrease in income after the death of a parent.  For families who are diligent at saving for their future – for retirement, education, supplemental needs, etc. – a loss of income may prevent the ability to maintain this saving pattern.  Families must address issues of both current spending to maintain their lifestyle and their savings and investments for the future. 

The other common error in purchasing life insurance is buying only term life insurance.  Term insurance is life insurance that is designed to last for a predetermined number of years, such as 5,10, 20 or possibly 30 years if applied for at an early age. Term insurance works in the event that the need for protection is for only a temporary period of time. In special needs planning, the “need” is not temporary – it is permanent. As we have discussed, the need to address that second generation of financial issues comes into play once again.  There may be a need for permanent life insurance protection, rather than term life insurance that only lasts until the children have grown in 20 years.  A recommended strategy is to acquire a combination of both term and permanent insurance.

Tags: Special Needs Trusts

Retirement Accounts and Special Needs Trusts

Posted by Patty Manko on Thu, Feb 20, 2014 @ 04:51 PM

 

describe the imageBeneficiary Designations on Retirement Accounts

At the death of the owner of an IRA or company-sponsored retirement plan, the proceeds are distributed according to the beneficiaries that are listed when the application is signed. Generally speaking, if you are married, your spouse is usually listed as the primary beneficiary. At the owner's death, the spouse will be able to transfer the assets into a spousal IRA rollover. This will enable the spouse to defer the taxes until the funds are withdrawn from the account. If you are not married and your intent is for an individual with a disability to receive any portion of the IRA, it is recommended to have those proceeds paid to a trust that has special needs provisions. 

If a special needs trust is used as the beneficiary of a retirement plan account, the income earned in the trust will be taxed to the trust, usually at a higher tax bracket than an individual tax bracket. The proceeds from a Roth IRA are distributed tax free upon death of the owner. If an owner has a Roth IRA in addition to other retirement accounts, it may be advantageous to have the special needs trust named as beneficiary of the Roth IRA and the other children named as beneficiaries of the other IRA and retirement plan assets.

It is not recommended to have an individual with disabilities named individually as the beneficiary of the traditional IRA or Roth IRA, because an account balance greater than or equal to $2,000 will disqualify him or her for government benefits. Instead, if the owner wants the value of all or a portion of the IRA to be received by a person with disabilities, that person's special needs trust should be named as one of the beneficiaries.

Special Needs Planning Pointer

If you have more than one child and you intend to split your retirement account between all the children, including your child with special needs, you should direct his or her share in the beneficiary designation to the special needs trust. An example would be to have Adam Miller name his wife, Justine, as his primary beneficiary. He would then name two of his children, Kyle and Alyssa, as contingent beneficiaries, each to receive 33% of the retirement account; and he would name the special needs trust created for his third child, Alexia, as a third contingent beneficiary to receive the remaining 34% of the retirement account. Adam would list the special needs trust for Alexia on his beneficiary designation form by including the proper registration, "The Alexia Miller Special Needs Trust Dated January 1, 2007."

Tags: Retirement Planning, Special Needs Trusts, financial planning

FAQs : Funding a Special Needs Trust

Posted by Patty Manko on Thu, Feb 13, 2014 @ 11:41 AM

moneyThe establishment of a special needs trust can provide a false sense of security that you are all set. It is
the money that funds the trust that will secure the resources for your loved one to be cared for.

What is a special needs trust?

A Special Needs Trust (SNT) is a legal document and a very important part of your child's long-term financial plan.

The trust may be used to hold money:

  • that you save that others give your child as gifts
  • that you receive from an insurance settlement
  • Funds in the SNT will not interfere with your child's eligibility for federal benefits like Medicaid and Supplemental Security Income (SSI).


Who are the parties involved?
The individual who funds the trust is the Donor. The individual who benefits from the trust is the Beneficiary. The individual who oversees the trust is the Trustee. 


When should families fund the SNT ?
 In most circumstances the SNT is funded at the death of the parent(s) or primary care giver, rather than during their lifetime. The term used for a trust that is funded at the death of an individual is a Testamentary Trust.


Reasons for not funding the trust during a donor’s lifetime include:

  • Once a trust is funded, the money can only be used to meet the  beneficiary’s supplemental needs. 
  • A separate tax return must be filed.
  • Taxes on any earnings must be paid by the trust. Income earned in  the trust is usually taxed at a higher tax rate than an individual rate.
  • Once a trust is funded, it becomes irrevocable. This prevents you  from making any changes to the terms of the trust.
  • Overall, there is no flexibility in your plan. 

Although funding the trust may reduce flexibility, the following are some of the reasons why one may consider funding a SNT during the lifetime of the donor as a planning strategy: 

  • If an individual has more than enough money to meet his/her  personal needs and will not jeopardize their personal financial  security.
  • Provides the donor with the comfort of knowing that there will be a  certain amount of money available for the beneficiary.
  • Parents who have taxable estates and are implementing strategies to  reduce their estate tax liability.
  • Grandparents or others are trying to reduce their taxable estate by  gifting to your child – the SNT protects the child’s eligibility for  government benefits.

•  Money in the trust can provide some protection from creditors. 

  •  Money directly received by the child either through an inheritance  and/or a legal       settlement which would otherwise disqualify them for  benefits. This would be a “payback” SNT.


Regardless of the timing decision for funding the trust, it is important to do whatever you can to makes sure there will be adequate money in the trust to provide for your child’s security. There are two steps:

•  identify what the anticipated needs will be
•  assess what steps you can realistically take to provide what is  necessary in light of your other financial requirements and goals.

 

Tags: Special Needs Trusts, Trustee Services

Year End Planning Tips for Families with Special Needs

Posted by Patty Manko on Wed, Dec 18, 2013 @ 04:40 PM

2013 2014 year end resized 600This is a great time of year to reflect upon what has happened in 2013 and enable you to set goals for 2014. Here are also a few additional planning strategies to consider.

1. Update your Letter of Intent (LOI)

This is a great gift idea too, not only for your child, but for yourself. Many of our client's give an updated copy of their child's LOI at the holidays to each of his/her future caretakers, guardians, and trustees. Keep your LOI up to date and you will have the peace of mind knowing that if anything should happen to you, then you have left a legacy of information and the vision you have for your child's lifetime.  The LOI is the one central place to put all of your child's important information and important people and agencies in his/her life. You can also tell others about daily routines, habits, hygiene, hobbies, preferences of your child, and so much more.  Click here to download a sample LOI.

2. Gifts from Grandparents

Please remember to say thank you first! This is the time of year that gifts of money can be in excess of the $2,000 limits. The annual gift tax exclusion amount is $13,000 for 2012. Unfortunately if given to your child or to an account in his/her name, this gift can jeopardize your child's eligibility for government benefits. Gift giving, if done properly, can be beneficial for everyone. Please contact us if you would like to discuss options for your own financial and estate planning.


3. Gifts to Charities

Don't forget to support the agencies that support your family members. This time of year, most charitable non-profit organizations and agencies are asking for your financial support. They do so to be able to continue to provide the services and supports to your family member. Most donations to these agencies are tax deductible to you. Don't forget to consider any matching gifts from your employer(s). This is our chance to give back and say thank you. If you would like to discuss options of charitable giving techniques for your own personal financial and estate planning, please contact us.

We wish all our readers a very happy holiday season.

Tags: Special Needs Financial Planning, Special Needs Trusts, special needs Letter of Intent

Special Needs Trust Distributions and Trustee Fees

Posted by Patty Manko on Fri, Nov 15, 2013 @ 12:22 PM


describe the imageTrust Distributions

Most special needs trusts give the trustee sole discretion to make distributions from the trust funds. There are specific guidelines to be followed in making distributions.  A general rule is that distributions should not be made directly to the beneficiary.  Instead checks should be made payable directly to the vendors when goods are purchased or to the providers when services are rendered.

Charging a trustee fee

Even if the trust does not contain any specific language about fees, the trustee has a right to be paid.  The trustee fee is a tax deduction for the trust and is taxable income to the trustee.  The following are some factors to consider in determining an appropriate fee:

  •   the amount of assets in the trust
  •   the complexity of the investments
  •   the beneficiary’s needs
  •   the services being performed 

There are two considerations used in determining a fee; the first is the number of hours worked, the second is the type of service provided. Activities such as paying bills and balancing the checkbook will be charged at one rate. More complicated tasks such as working on legal, investment, and tax matters would probably command a higher figure. This is especially important if the trustee has a financial or legal background. 

Time and billing records

The trustee should keep a written record of all the time spent on trust activities. Some trustees maintain a log book in which they write down the date, time spent, and nature of each service. If any personal funds are used for the trust, the trustee should keep receipts for reimbursement from the trust assets. Reimbursements should be made promptly. Plan to keep these records at least until the beneficiaries have approved your account. Click below to view an example of a  trustee log and to download a blank log. 

 

Tags: Special Needs Trusts, Trustee Services

10 Steps to Plan for Your Child with Special Needs

Posted by Patty Manko on Fri, Oct 18, 2013 @ 09:22 AM


describe the imageAs friends worry out loud about how they'll pay for their kids' college education, the parents of children with special needs have worries that extend beyond the few years it takes to get a college degree:

  • How will we pay for the special therapies our child needs now?
  • Who will pay our child's expenses once he or she becomes an adult?
  • Where will our child live and who will oversee his or her care after we're gone?

 

These daunting questions and fears stop many parents in their tracks but creating a plan can ease anxiety. Some of the issues you need to confront are financial: How do you set aside money for your child without affecting his or her government benefits? And some are emotional: Who would understand your child's needs if something were to happen to you right now?

Here are 10 steps to planning your child's financial future. Some are simple, some are challenging; some cost nothing and some require paying legal fees. Get started on some of these now, so you'll have peace of mind down the road.


1. Create a Special Needs Trust

A special needs trust is the most important part of your child's long-term financial plan. This is where you can put money that you save, that others give your child as gifts, or that you receive from an insurance settlement without worrying that these funds will interfere with your child's eligibility for federal benefits like Medicaid and Supplemental Security Income (SSI).

Even if you're unable to pay into a trust right now, set one up anyway. This way, you can make the trust the beneficiary of your life insurance policy and your estate, ensuring that those assets don't get passed to your child when you die. Why wouldn't you want your child to be the beneficiary of your estate? Because showing more than $2,000 in assets could make your child ineligible for federal benefits such as SSI.Learn more about special needs trusts by clicking below.

2. Write a Will

A will specifies what will be done with your assets after your death. By writing a will, you make sure that your assets are left to the special needs trust and not to your child. Without a will, a probate court judge could name your child as a beneficiary, which could make your child ineligible for federal benefits (see above). The will is also where you can specify a guardian who will take care of your child.

When you have a child with special needs, a will should not be a do-it-yourself endeavor. Hire a lawyer who works specifically for people with special needs and is aware of your state's disability laws. Once the documents are drafted, have your lawyer keep one and then give copies to any executors or guardians named in the will.

Costs for this legal paperwork, including the will, trust, and powers of attorney, start at $1,500 and go higher depending on where you live. Contact the Academy of Special Needs Planners or the Special Needs Alliance for a referral to an attorney in your state.

3. Name a Guardian

A guardian is the person who will care for your child if you were to die before he or she becomes an adult. In choosing this person, consider how much time you now spend tending to your child's needs. Who can handle that type of commitment? Who has bonded with your child? Who has the patience, understanding, and other personality traits necessary to deal with the day-to-day responsibilities of raising your child?

Once you pick someone, ask the person if he or she can and will accept that responsibility (even though you hope it will never be necessary). And talk about how this commitment will likely stretch beyond when your child turns 18.

4. Name a Trustee

A trustee is the person who will be responsible for managing the special needs trust after your death. It can be a family member, a friend, or even a bank or lawyer. The trustee ensures that the money in the trust is spent only on your child with special needs and only on services that you've specified or that are appropriate to your child's needs. The trustee also supervises how the money in the trust is invested. The person who is caring for your son or daughter (the guardian) cannot spend any money in the trust without the trustee's approval.

And a word on trustees and guardians: They often are not the same person, and some financial advisors recommend that they never be the same person. By separating these roles, you ensure a "checks and balances" system for your child's future needs.

5. Build Your Savings

Parents of children with special needs quickly learn that just because a child needs a certain treatment or therapy doesn't mean that your school system will offer it or insurance will cover it. This is where personal savings become so important. Start putting aside whatever you can each month — no amount is too small — to cover these extra expenses. Just make sure you never put this money in your child's name.

Savings also can help pay for a special needs advocate, an expert in special education who can help you navigate the paperwork, programs, and laws that affect what services your child qualifies for. Special needs advocates can save parents money in the long run by using their expertise to ensure that kids get all the services they're entitled to from their local school district.

To find an advocate in your area, contact your local school district, organizations focused on your child's disability, or local colleges with special needs programs for a referral.

6. Write a Letter of Intent

Preparing for your child's financial future is important. But hand-in-hand with that is making sure that your child's everyday needs will be met should anything happen to you. That's where a Letter of Intent comes in. Is your child's daily routine very important? Write it down and be as detailed as possible. The same goes for your child's daily, weekly, and monthly schedules.

Create a list of contact information for your child's physicians, therapists, and other medical support people as well as current medications and their dosages and schedules. Are there people you don't want around your child or activities to be avoided? Write that down too.

And then once a year, update the letter. This is not a formal legal document, so you can draft it yourself. Keep a copy wherever you have copies of your will. And make sure that your child's appointed guardian has a copy too.

7. Plan for Your Child's Independence

When your child is about 16, start thinking about where he or she will live as an adult. In most states, people with special needs are 21 or 22 years old when they become ineligible for education services through the local public school system.

So start thinking: Will your child remain living with you? If so, will support personnel be needed during the day when he or she used to be at school? Are day programs for adults with special needs available in your area? If independent living is the goal, start investigating options in your community such as shared living, group homes, or apartments. Once you find a place you like, get on the waiting list if there is one.

8. Apply for Guardianship or Power of Attorney

Once children turn 18, they're considered adults in the eyes of the law. This gives your child the right to make medical and financial decisions. If he or she is not capable of this or needs your guidance, consider assuming legal guardianship or the less-restrictive power of attorney and health care proxy for his or her financial, legal, and health care affairs. This way you maintain the same supervision and control you had over these as you did when your daughter or son was younger.

Experts advise parents to hire an attorney to help with this process. This will ensure that you have all the powers you would need to assume control of your adult child's health care in the event of an emergency. If your child cannot or won't consent to you assuming power of attorney, the matter will likely be decided before a probate court judge.

9. Educate Family Members

Grandparents, aunts, uncles, and other loved ones might want to help out with expenses. But explain to them the importance of not putting anything in your child's name. Have a family meeting and explain why grandpa can't leave anything to your child in his will or name your child beneficiary on his life insurance policy. The same goes for gifts of savings bonds, stocks, or cash: nothing should ever be in your child's name.

And if your son or daughter will not attend college, there is no need for a 529 savings plan. Those funds can only be used for post-secondary education, not private schools, tutoring, or therapies needed before age 18.

If loved ones want to leave something to your child, they can. But tell them to name the special needs trust as the beneficiary to ensure that your child holds no assets of his or her own.

10. Need Help? Find an Advisor

If all of this is too overwhelming, as certified financial planners and  special needs financial planners, we can help. Ask your human resources department if your company offers this service as part of your benefits package. 

 

Source:Kidshealth.org

Tags: Special Needs Financial Planning, Special Needs Trusts, Trustee Services

You've Been Appointed Trustee: What Now?

Posted by Patty Manko on Fri, Oct 11, 2013 @ 01:18 PM

trust resized 600Whether it's an honor or a burden (or both), you have been appointed trustee of a trust. What responsibilities have been thrust upon you? How can you successfully carry them out?

Here are some dos and don'ts to get you started:

1.  Do read the trust document. It sets out the rules under which you will operate. So you need to understand it completely.

2.  Do create a checking account for the trust. All income and expenses should go through this account. While you can and should invest the money, a checking account will enable you to make distributions and payments and keep track of them.

3.  Do keep the best interests of the beneficiaries in mind at all times. You have what's called a "fiduciary" duty to them, which is an extremely high standard.

4.  Don't have any personal financial dealings with the trust. For instance, you cannot borrow money from the trust or lend the trust money to anyone.

5.  Do provide the beneficiaries and anyone else indicated in the trust with an annual account of trust activity. This can be a copy of the checking and investment account statements or a more formal trust account prepared by an accountant or attorney.

6.  Do invest the trust funds prudently and productively. It is wise to get professional investment advice.

7.  Do keep in regular contact with the beneficiaries to understand their needs.

8.  Do be aware of any public benefits the beneficiaries may be receiving and make sure you do not jeopardize the beneficiaries' eligibility.

9.  Do file annual income tax returns for the trust.

10.  Don't fly solo. Get professional advice to make sure you are correctly fulfilling your role. Click on the image below to access the Fall 2013 calendar of upcoming free workshops.

Blog Source: Margolis & Bloom Law

describe the image

 

Contact us for further information.


 

 

 


Tags: Special Needs Trusts, Trustee Services

Financial Q & A: Special Needs Trust

Posted by Patty Manko on Tue, Aug 06, 2013 @ 05:36 PM

family in field illus resized 600The establishment of a special needs trust can provide a false sense of security that you are all set. 

The money that funds the trust will secure the resources for your loved one to be cared for.

What is a special needs trust?

A Special Needs Trust (SNT) is a legal document and a very important part of your child's long-term financial plan.

The trust may be used to hold money:

  • that you save
  • that others give your child as gifts
  • that you receive from an insurance settlement

Funds in the SNT will not interfere with your child's eligibility for federal benefits like Medicaid and Supplemental Security Income (SSI).

Who are the parties involved?

The individual who funds the trust is the Donor. The individual who benefits from the trust is the Beneficiary. The individual who oversees the trust is the Trustee

When should families fund the SNT ?

 In most circumstances the SNT is funded at the death of the parent(s) or primary care giver, rather than during their lifetime. The term used for a trust that is funded at the death of an individual is a Testamentary Trust.

Reasons for not funding the trust during a donor’s lifetime include:

  •  Once a trust is funded, the money can only be used to meet the  beneficiary’s supplemental needs. 
  •  A separate tax return must be filed.
  •  Taxes on any earnings must be paid by the trust. Income earned in  the trust is usually taxed at a higher tax rate than an individual rate.
  •  Once a trust is funded, it becomes irrevocable. This prevents you  from making any changes to the terms of the trust.
  •  Overall, there is no flexibility in your plan.

Although funding the trust may reduce flexibility, the following are some of the reasons why one may consider funding a SNT during the lifetime of the donor as a planning strategy:

  •  If an individual has more than enough money to meet his/her  personal needs and will not jeopardize their personal financial  security.
  •  Provides the donor with the comfort of knowing that there will be a  certain amount of money available for the beneficiary.
  •  Parents who have taxable estates and are implementing strategies to  reduce their estate tax liability.
  •  Grandparents or others are trying to reduce their taxable estate by  gifting to your child – the SNT protects the child’s eligibility for  government benefits.
  •  Money in the trust can provide some protection from creditors. 
  •  Money directly received by the child either through an inheritance  and/or a legal settlement which would otherwise disqualify them for  benefits. This would be a “payback” SNT.

Regardless of the timing decision for funding the trust, it is important to do whatever you can to makes sure there will be adequate money in the trust to provide for your child’s security. There are two steps:

  •  identify what the anticipated needs will be
  •  assess what steps you can realistically take to provide what is  necessary in light of your other financial requirements and goals.

How to be sure you are all set: 

Review this checklist carefully. It is very important! If you have any questions, please feel free to email Cynthia and John.

1. What is my vision of the legacy which I wish to leave my child (or other family member) with special needs?

 2. Have I established proper Wills & Trusts that transform my clear vision into an absolute future reality?
 
 3. Does my Executor/trix or Guardian have a Letter of Intent which outlines my wishes for the future care of this person?
4. Will this Letter of Intent be passed to others who may eventually care for my child, should s/he out-live my second caregiver?
 

5. Is the Trust endowed with enough money to assure that distributions will not consume their principal throughout the beneficiary's lifetime?

6. Have I insured that caregiving survivors are financially protected from the future expenses in the care of my loved one with special needs?
 
 So...are you all set? If you answered "No" to any question, your plan is not complete. We encourage you to seek the answers to all these questions.


Tags: Special Needs Financial Planning, Special Needs Trusts, Letter of Intent, Life Insurance

Guardianship Considerations for Individuals with Disabilities

Posted by Patricia Manko on Thu, Jul 11, 2013 @ 01:47 PM

describe the imageGuardianship is a legal means of protecting children and  "incompetent adults" (in legal terms, adults who cannot take care of themselves, make decisions that are in their own best interest, or handle their assets due to a physical or mental disability). When the court determines that a person is incapable of handling either their personal or financial affairs a guardian will be appointed.

The subject of guardianship for an adult child with disabilities is of concern to most parents. Parents of children with severe disabilities often assume that they can continue to be their adult child's legal guardian during the child's entire life.

Although it may be obvious to a parent that a child does not have the capacity to make informed decisions, legally an adult is presumed competent unless otherwise determined to be incompetent after a competency proceeding. Once an individual reaches the age of 18, the parent is no longer the individual's legal guardian. Parents need to explore legal options available to protect their child from unscrupulous individuals who may exploit their child's inability to make informed choices.

Some things to know when considering guardianship:

a. A guardian of the person is responsible for monitoring the care of the person with disabilities to ensure that the individual is receiving proper care and supervision. The guardian is responsible for decisions regarding most medical care, education, and vocational issues.

b. A guardian of the estate or conservatorship should be considered for a person with disabilities who is unable to manage their finances and have income from sources other than benefit checks, or have other assets and/or property.

c. A guardianship may be limited to certain areas of decision making, such as decisions about medical treatment or medications in order to allow the individual to continue making their own decisions in all other areas.

d. A temporary guardian or conservator may be appointed in an emergency situation when certain decisions must be made immediately.

If an individual with a disability is capable of making some but not all decisions, one or more of the alternatives to guardianship discussed here should be considered. These alternatives to guardianship are listed from least restrictive to most restrictive:

1. A joint bank account can be created to prevent rash expenditures. Arrangements can be made with most banks for benefits checks, such as Social Security or SSI payments, to be sent directly to the bank for deposit. (Remember to keep this account balance below $2,000.)

2. A representative payee can be named to manage the funds of a person with a disability who receives benefits checks from Social Security, Railroad Retirement, or the Veterans Benefits Administration. Benefits checks are sent to the representative payee.

3. A durable power of attorney (POA) for property is a legal document that grants one person the legal authority to handle the financial affairs of another. Generally, the use of a POA should be used when the individual with disabilities has the capacity to make basic meaningful decisions and does not require full guardianship but may not be able to make complex financial decisions without support.

4. A durable POA for health care, also known as a health care proxy, should be considered for individuals who are presently capable of making decisions about their health care and wish to anticipate possibly future incompetence.

5. An appointment of advocate and authorization allows a person with a disability to designate an agent to advocate on his or her behalf with administrative agencies such as the state department of cognitive disability, the department of mental health services, or the department of medical assistance.

6. Trusts may be an appropriate alternative to appointment of guardian in some circumstances. A trust is a legal plan for placing funds and other assets in the control of a trustee for the benefit of an individual with a disability - or even for those with no known disability.

7. As mentioned previously, guardianship is an option for persons who, because of mental illness, developmental disability, or physical disability, lack sufficient understanding or capacity to make or communicate responsible decisions concerning their care and financial affairs. Guardians are approved and appointed by the court. Guardianships are also supervised by the court. The guardian provides a report on the status of the individual to the court annually.

In general, the guardian or conservator is responsible for handling the individual's financial resources, but is not personally financially responsible for them from his or her own resources.

This list of alternatives to guardianship is not exhaustive, but worth speaking with an attorney about. As with all legal decisions, we suggest you seek legal advice from an attorney who is knowledgeable in disability law in the individual's state of residence.

Tags: Special Needs Financial Planning, Special Needs Trusts, guardianship, special needs Letter of Intent

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