11 July 2016

Special Needs Trust: Balancing Benefits & Life-Long Financial Security

In America, the average life expectancy is around 78 years. But life was a lot bleaker just a century ago. In 1907, the average man could only expect to live 45.6 years, according to LiveScience. It’s no secret that we’re living longer than ever before, but it is a myth. What’s changed, and changed radically, is survival. Strip infant mortality from an analysis of life expectancy and you’ll discover that men and women in the Victorian period lived well into their 70s – just like today.

Breakthroughs in medical science and rising standards of living have allowed the developed world to overcome conditions that, 150 years ago, would have claimed millions of newborn lives. Thankfully, these advances have also touched the lives of people with disabilities.

Longer Lives & A Greater Need For Long-Term Support

In 1983, just 33 years ago, a person born with Down Syndrome could expect on average to live only 25 years. Today, the life expectancy for a child born with Down Syndrome is 60. Undoubtedly, this is a blessing, but the increasing lifespans of people with disabilities puts additional responsibilities on their parents. How can you provide for your child, not only now, but long into the future, even after you’re gone?

Young Children On Bed

This is a big worry for many parents. In a 2011 MetLife survey of 1,000 caregivers of children and older adults with special needs, 71% of respondents reported being “concerned” about the task of preserving government benefits for their dependents, while 69% said they worried about providing life-long care.

Means-Tested Benefit Programs Present A Catch-22

Government benefits, especially Supplemental Security Income (SSI), are usually the first source of support for children with special needs. But government programs have strict eligibility requirements. For SSI benefits and Medicaid, people with disabilities aren’t allowed to own over $2,000 in personal assets. More problematic, these requirements usually take a family’s income and assets into account, too.

That’s a Catch-22, according to the Wall Street Journal. Parents want to save for their child’s future, but due to rigorous income and asset thresholds of government benefit programs, can’t actually save the money.

For many families, the solution to this problem comes in the form of a special-needs trust.

What Is A Special Needs Trust?

First, let’s cover the basics behind trusts in general.

Fundamentally, a trust is a legal arrangement. It’s established by one person, called a “grantor,” but gives someone else, a “trustee,” the legal authority to invest and manage money that will be placed in the trust. Grantors write their own rules for the trust, setting a purpose for the fund and, in some cases, defining how the trust’s assets can be used. Then a “donor” (usually the trust’s grantor) will gift the trust money, assets that the trustee will manage. According to the trust’s rules, a third person, the “beneficiary,” will receive any interest, dividends or profits that the trust earns.

Special needs trusts operate in a similar way, but properly written, they’ll be defined as “supplemental” rather than “supportive.” That means the money going to the trust’s beneficiary, a person with special needs, is intended to supplement, not replace, the benefits provided by the government. Money from the trust covers goods and services that programs like SSI or Medicaid won’t cover. Drawing this bright line allows children or adults who receive money from the trust to continue receiving their day-to-day government benefits.

When Is A Trust The Right Option?

Special needs trusts can be particularly beneficial for children who have recently received large settlements or jury verdicts in personal injury, medical malpractice or product liability lawsuits. Without a careful plan for the future, a settlement could push many families over the government’s income thresholds for benefit programs. Of course, the benefits provided through Supplemental Security Income are intended to cover the basic needs of daily living. They’re not a recipe for long-term financial security. Striking the appropriate balance, between continuing to receive benefits and managing a settlement or monetary award, is crucial.

Unfortunately, only 14% of the parents and caregivers polled in MetLife’s survey were familiar with special needs trusts at all. 68% of respondents reported being unfamiliar with the option, while just 21% had actually established a special needs trust.

Solutions exist, but few caregivers know about them.

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