Funding Special Needs Trusts

As the parent of a loved one with special needs, you want to ensure your loved one will be financially secure even after you cannot provide that support yourself. A Special Needs Trust (SNT) can be used to insulate assets and avoid disrupting valuable government benefits.

With the cost of medical care on the rise and the amount of government assistance dwindling, you feel the pressure to find maximum funding for your child's benefits. The projected amount of SNT funding, therefore, takes on added importance, but how much funding will be required to maintain the lifestyle you intend? 

A good initial exercise would be to outlinea "Letter of Intent" (LOI). An LOI is a non-binding memorandum of instruction that clearly describes your intentions for the care of your loved one. It should address things such as accommodations concurrent with the person's medical condition, guardianship issues, desired living arrangements, etc. This document, while not legally binding, could help the trustees of the SNT better understand what you intend for your loved one.

The LOI could serve as an effective tool in developing an expense framework to begin funding calculations. Once you developed a list of anticipated expenses, you could reasonably calculate the amount of income you might need the assets to produce to fund the trust.

Simplify your calculations by accessing one of a handful of websites that provide easy-to-use online calculators (aspencross.com and ml.com are good places to start). The calculators should provide an estimate of how much your child might need for a lifetime of financial support. Some websites will project both a likely stream of income and a lump sum amount that would be adequate to cover a lifetime of supplemental benefits.

You would begin the process by listing the current income and expenses that would likely carry forward into adulthood. Consider income from sources such as death benefits, gifts, inheritance and legal settlements. You should also estimate what your loved one could expect to receive in public benefits from SSI, SSDI and MassHealth. I suggest you re-run these calculations at least once a year to update the funding goals relative to changing life circumstances.

SNTs can generally be funded with a wide range of assets such as cash, stocks, bonds, mutual funds, annuities, life insurance, personal property and even real estate. As I pointed out last week, life insurance is a popular funding vehicle because it provides a substantial tax-free benefit for a relatively affordable cost. 

There are numerous techniques to appropriately structure your assets to maximize income streams, but before you make any decisions about funding, consult a financial planner. Asset planning considerations such as time horizon, risk, asset allocation and asset protection must be considered when crafting an appropriate and effective plan.

Many families find the estimated amount intimidating, but having an amount to shoot for can help establish a long range goal for your planning. Be sure to partner with a financial planner and estate attorney who specializes in special needs planning and has experience helping families with similar circumstances. 

If you have any questions or comments, please post them here, send me an e-mail at jmahoney@aspencross.com or call me at 508-870-0440, ext 187.