For clients who have family members with intellectual and developmental disabilities (IDD), taking care of their loved ones after they pass may be their top financial priority. One way of ensuring for the care of a family member with IDD is through the creation of a Special Needs Trust.

What is a Special Needs Trust?

A Special Needs Trust is an irrevocable trust that holds funds to meet the care costs of a loved one with IDD. The trust is managed by a trustee designated at the time of the trust’s creation and is designed to end upon the death of the beneficiary or when the funds run out.

Trust funds cannot be controlled by the beneficiary. Trust payments are generally not paid directly to the beneficiary since they can impact eligibility for government assistance. Instead, the funds are paid directly to the providers of qualified goods and services, including personal caretakers, education, computers, assistive technology, physical rehabilitation and out-of-pocket medical expenses.

Important Considerations When Creating a Special Needs Trust

Parents, grandparents or legal guardians who are thinking about funding a Special Needs Trust should bear in mind some key considerations.

• Since the trustee will be in charge of when and how much to distribute from the trust, it’s crucial that the trustee faithfully looks after the beneficiary’s needs for the life of the beneficiary. It’s why a corporate trustee may be the best approach for most situations.
• Write a letter of intent. This document serves as a guide to a trustee or guardian for when a parent is no longer able to take care of an IDD child. It may include details such as the beneficiary’s likes and dislikes, habits, medical history, and other goals or aspirations.
• Be mindful of other heirs. When planning to fund a Special Needs Trust, consider what other children will receive as their inheritance. One approach is to divide the estate equally among all the children and provide additional Special Needs Trust funding with life insurance.
• Select a good money manager. How well the trust’s assets are managed will have a direct bearing on how long the funds will serve as a means for support. Consequently, be sure to hire a money manager that understands the need for capital growth within the context of responsible risk management and has a record of sound investment performance.

Individuals should seek the help of a competent estate planning lawyer to navigate the complexities of setting up the trust and who can work with your financial advisor to coordinate trustee and money manager selection.

Please reference disclosures: https://blog.americanportfolios.com/disclosures/