Scoop Essentials: Planning For The Long Haul
Recently we brought you Scoop Essentials: The Dollars And Cents Of Disability, a conversation about special needs trusts, conservatorships, government benefits and more.
Now, attorney Diedre Wachbrit Braverman who is a co-founder of the Academy of Special Needs Planners, answers your questions about guardianship, when and how to set up a special needs trust and who to involve.
How much money should a parent try to make sure is in a special needs trust to help their child with disabilities have a life of which they are accustomed? — Kathleen Hoppa Grady, 51, Champaign, Ill.
Advertisement - Continue Reading Below
Diedre Wachbrit Braverman: Your question is an important one that often requires life insurance as part of the answer. But here’s a step-by-step process for determining how much to put into a special needs trust (SNT):
1. Determine the lifestyle you would like your child to have, paying particular attention to living arrangements, transportation and caregiving services, all of which can get expensive.
2. Create a comprehensive budget that would fully fund that lifestyle and figure out how much your child needs to spend per year above and beyond what government benefits might provide.
3. Divide that annual figure by .05. This will produce a principal amount that can distribute 5 percent per year forever at your child’s annual spending need.
If you’d like to get more detailed in your projections by including inflation factors and breaking the budget down in detail, click here for a list of free on-line calculators to help you do just that.
At what age should you establish a special needs trust for your child? One attorney told me to wait until my daughter was older. Also, what criteria should I consider when choosing an attorney to develop the trust (i.e. special certifications, etc.)? — Pat Miller, 56, Lansing, Mich.
Diedre Wachbrit Braverman: You should establish a special needs trust for your child as soon as you become concerned that your child may not be self-supporting as an adult. You can always make changes to it as your child grows and you better understand her needs and abilities. The danger in waiting for later is that there might not be a later. None of us knows when our estate plan will be needed.
When interviewing attorneys, find out if they are members of the Academy of Special Needs Planners. Ask them what percentage of their practice is devoted to special needs planning (25 percent or more would be good). Ask them if they have dealt with situations like yours before and listen carefully to the answer. It can reveal their level of empathy and experience, how creatively they plan and whether you like and trust them. In some states, estate planners can be certified by the state bar, which can be an impressive credential. Finally, ask for references and call them. Expect to wait a few days while the attorney gets permission from her clients for you to call, but if you don’t hear back from the attorney within two weeks, move on.
When you call the references, try to gauge how similar their situation is to yours. If they are nothing like you, then perhaps that attorney doesn’t handle a lot of cases like yours and you should move on.
To start your list of potential candidates, click here to search for attorneys in your area. You may also want to ask around at local parent groups. CPAs often know many attorneys, as do other attorneys. One technique is to call a few estate planning attorneys in your area and ask who the best special needs trust planner in town is. One or two names will probably pop up again and again.
My son with autism is my youngest of four children. How much should I legally involve his sisters in his life planning? He is currently 9 and a half and they are 10 and half, 13 and 15-years-old. Thank you. — Angela Bechtel, LMSW, 45
Diedre Wachbrit Braverman: It is probably too soon to tell whether your daughters would make good trustees, guardians or advocates, so I would recommend that for now, while they grow up and you get to know them better, you name them as members of a Trust Advisory Committee upon reaching the age of 18. That way, they can advise the trustee on expenditures for your son and have an “official” role in his SNT.
As you get a better sense of their relationship with their brother and with money, you may want to increase their involvement in your plan. Make sure your SNT is revocable so that you can make those changes if and when you are ready.
My son is 17 and 4 months and is bipolar plus more. Can I get legal authority if he needs to be put in a psychiatric facility after 18? He seems to know it all and thinks when he turns 18, he doesn’t have to listen anymore. He has been away for a year now in the judicial system with no treatment. Your input is greatly appreciated. Thank you. — Bruces Mom, 46
Diedre Wachbrit Braverman: You may be able to obtain a guardianship or conservatorship over your son (in California you can start the process six months before the child’s 18th birthday, so you are asking at the right time). The difficulty you may face is that many people with bipolar disorder are perfectly competent while they are taking their medication and only need a guardian/conservator when they are not. The courts are reluctant to award guardianships/conservatorships in such cases. However, if his disabilities are fairly consistent, the diagnosis of bipolar disorder would be a legitimate basis for guardianship/conservatorship. He will probably fight you on the conservatorship/guardianship, so be prepared to spend a fair amount of money and make sure you hire an attorney who handles contested conservatorships/guardianships.
Please note that even if you are successful in extending your parental authority past the age of 18, there are limits to how well you can protect him. You may have to rely on police assistance from time to time. I wish for strength for you because you will need it.
Can the funds designated for young adult children be directed by the parents and young adult to provide more inclusive experiences such as music therapy, fraternity time with a designated peer, exercise with a trainer, job coaching, dance, etc? — Bonnie, 58
Diedre Wachbrit Braverman: Anyone can spend their own money any way they like. So I’m assuming that you are asking if funds held in a special needs trust can be spent on things that aren’t directly related to the special need. The answer is, probably yes. Unless the trust prohibits it, the trustee can generally make distributions for anything that is in the beneficiary’s best interests. Your state’s trust law comes into play because the trustee has to be reasonable under state law. It’s probably not reasonable to spend $1,000 a month on dance lessons if the trust has only $20,000 in it.
The other thing to watch out for is the effect on public benefits. Since your beneficiaries are adults, they probably qualify for Supplemental Security Income (SSI) and Medicaid. Distributions for anything that would be considered food or shelter may reduce those SSI benefits and, in a worst case scenario, cause the beneficiary to lose Medicaid. Furthermore, some special needs trusts prohibit distributions that will cause a reduction in benefits no matter how much the trade-off makes sense.
Our son is almost 13-years-old. He has developmental disabilities but we are not sure what services he will need and how much. So we are in the process of setting up a special needs trust for him. The lawyer we are working with recommends a half million to three quarters of a million dollars as a ballpark figure to have in the trust. We are also working with a financial planner to help us get our financial life in order. She has recommended that my husband get term life insurance to replace a couple of whole life policies, both to save on premiums and to get some cash payouts that would help us now. The lawyer says not to cash in the whole life as this would have a cash value that could fund my son’s special needs trust for his future. What are your thoughts on this? — KHG, 51, Champaign, Ill.
Diedre Wachbrit Braverman: The problem with term insurance compared to permanent insurance is that it expires. So if you need insurance to meet the goal of funding $500,000 to $750,000 into the SNT, you want to do it with permanent insurance. That said, insurance has come down a lot in price over the past few years so you may be able to save on premiums by getting new policies.
You can also save on premiums by getting a “second-to-die” or “survivorship” policy that does not pay out until both of you are gone, just when the SNT needs it most.
Only you can balance your financial goals, but permanent insurance is definitely the preferred vehicle for funding SNTs. We attorneys want you to live a long healthy life and see all your term insurance expire.
I have heard there is federal legislation being considered that would allow for some type of trust fund for individuals with special needs up to $500,000. Are you aware of this pending legislation? How is it progressing? Does this change your previous advice? — Mom looking ahead, 56, Michigan
Diedre Wachbrit Braverman: Don’t look too far ahead! Estate planning should always be done for today, as well as for tomorrow. There are advocates in Congress who are seeking to create a tax-advantaged special needs savings account. However, right now, the special needs trust is the only game in town. Even if the accounts are created, special needs trusts will probably continue to be widely used because of their flexibility in planning for a variety of possible futures and in ensuring that the beneficiary will be okay no matter what.
I have a SNT in my will for one of my children. I have been told that the trustee will have the stretch out option. However, a second adviser says that the option will only be available if I put the SNT into an IRA Inheritance Trust (IIT) and furthermore, without an IIT, the bequest will first be subject to inheritance tax on the full amount. Is this correct? — Clarice, 81
Diedre Wachbrit Braverman: An IRA Inheritance Trust does not protect a bequest from estate tax. Estate tax currently applies to estates that exceed $3.5 million and is slated to drop to apply to estates that exceed $1 million in 2011. You have lots of options to help you reduce or pay for estate tax, but that is a separate issue.
What an IRA Inheritance Trust does is ensure that beneficiaries can use their own life expectancies in determining required minimum distributions (RMDs). It may also provide that the RMD can be retained in trust and not distributed to the beneficiary. This sort is called an “accumulation trust.” A careful attorney can put accumulation trust provisions into a special needs trust, so it may be that what your first adviser told you is correct. Ask the attorney who drafted your SNT to show you the accumulation trust provisions.
Even if your SNT does have accumulation trust provisions, it sometimes makes sense to have a separate IRA inheritance trust. This is because the rules on remainder beneficiaries (the people who inherit when the beneficiary with special needs dies) are very strict.
There are too many nuances for me to give you a checklist to make sure your SNT will work the way you want it too. Make sure you’ve chosen a good adviser — a member of the Academy of Special Needs Planners would be a good choice and ask that adviser to explain why she’s confident your SNT works as an accumulation trust. The right attorney is worth the search and the investment.
How is a guardian determined for a person with disabilities if there are multiple people vying for the position? — Jena, 27, Duluth, Ga.
Diedre Wachbrit Braverman: A guardian (or, in some states, conservator) is determined by the court using the “best interests of the child” (or adult) test. Some states have statutory preferences for nearest relatives so, all things being equal, it will be the closest relative of the child who is appointed. However, all things are rarely equal and this is an area where the court has tremendous discretion. A nomination of guardian by one or both parents will be given weight. Bottom line: it’s up to the judge to decide who she thinks will do the best job.