The Planner - August 2010

Preserving Government Benefits/Special Needs Planning Today
Are government benefits for a special needs person worth preserving? For families of modest or limited means, the answer is almost always, "Yes." However, for more affluent families, the answer may be, "Maybe not."

In the past, many planners focused exclusively on preserving public benefits at all costs. Today, special needs planning is not necessarily "poverty planning." The proper focus today is how to provide the best quality of life throughout the person's lifetime. It may be better to privatize some special needs care instead of spending thousands to protect a benefit that has a low probability of being available in the future.

Careful planning is necessary to craft a plan that will supplement government benefits that are worth preserving, is flexible enough to adjust to changes in future benefits, will preserve and expand assets, will make sure this person receives proper care, and may even save taxes.

It Takes a Team
For a special needs trust, the proper funding, implementation and periodic review are especially critical because it may have to last a lifetime and often cannot be replaced. Once the plan is in place, it will be need to be managed. Who should do that? The ideal trustee would:

Often a professional trustee will manage the funds, make distributions, prepare tax returns and keep the records, but will be directed by a Trust Advisory Committee that makes distributions, can amend the trust or replace the trustee. A care manager can be on this committee or be appointed by the committee.

Another alternative is to have a trustee manage the funds but be directed by a care manager who interacts with the beneficiary. A trust protector or advisor would oversee the trustee and care manager from a distance and would be able to replace either for any reason.

Planning Tip: Many parents think a sibling would be the best trustee, but this is rarely a good idea. Most individuals are just not prepared to handle the responsibilities. A professional trustee likely will, in the long run, be less expensive than the mistakes that are often made by a well-meaning but inexperienced family member. Also, some siblings may be torn between using the trust assets to provide for the beneficiary and preserving the assets, especially if they will inherit the assets after the beneficiary dies. It is usually better to have a professional as trustee, and have the family member be on the Trust Advisory Committee or to be the trust protector.

Planning Tip: The role of the care manager is critical. In most families, one person has been a fierce advocate, actively seeking benefits and supervising the special needs person's care and progress. The care manager will assume that role and will become the beneficiary's advocate, seeking and evaluating benefits and programs, supervising the person's care and preventing abuse. Selecting a care manager while the current advocate is living will give families peace of mind that their loved one will have the quality of life they so strongly desire.

Managing the Trust Assets
Careful investment of the trust assets is critical, since loss of these assets could be catastrophic for the beneficiary. The assets will need to earn or grow enough to provide for or supplement the beneficiary's care. Trust income can be distributed in such a way that it is taxable to the beneficiary (because the beneficiary will typically be in a much lower tax bracket than the trust itself), but without unintentionally jeopardizing any public benefits the beneficiary may be receiving. This can often be accomplished by having the trustee make direct payments to the providers for care and/or supplemental benefits.

Planning Tip: Insurance on the life of a parent or grandparent is often used to fund these trusts. Using a separate, stand alone trust (instead of a parent's revocable living trust) will also allow other family members to make gifts to support the beneficiary.

Planning Tip: Tax planning combined with special needs planning can present some unique opportunities. For example, using qualified plans to fund these trusts can offer tax advantages. Charitable trusts can also be used to benefit both the beneficiary and an organization. Families are often grateful to organizations that have provided assistance and benefits to the family member and to them, and often want to help make sure these organizations can continue to provide services to not only their loved one but to other families in the future.

Planning Tip: Families with affluent means will be able to provide more opportunities for their special needs beneficiary. For example, purchasing a home in a residential community will guarantee your loved one will always have a familiar, safe home.

Conclusion
If you or someone close to you has a loved one with special needs, we can help with all phases of the planning and implementation. Contact our office for a consultation.