Special Needs Planning
Estate planning is an important topic for everyone. Wills, trusts, powers of attorney, and health care directives are documents that can have a profound impact on you and your loved ones. These documents are important for every Arkansas family. Yet they are of even more vital importance to those with a special needs loved one. At Thomas Smith Law Firm special needs planning is near to our heart. We are committed to providing the best life-time oriented planning possible for families of special needs children and adults.
Getting it Right
Most persons with special needs participate in one or more government benefit programs. Many disabled persons over 18 receive Supplemental Security Income (“SSI”). This benefit pays a modest monthly amount to the beneficiary for necessities. Even more important for many special needs persons is Medicaid. Medicaid is a health program for persons who are disabled or otherwise do not have sufficient income to purchase traditional health insurance. Medicaid is especially important because it can provide medical services that may not otherwise be available to the beneficiary.
SSI, Medicaid, and some other government programs are means tested. A beneficiary that has too many assets (typically $2,000) will have their benefits suspended. This can result in the loss of monthly income as well as health benefits under Medicaid. That’s why it is important that parents and loved ones of those with special needs get it right.
Leaving money outright to a special needs beneficiary is often not advisable. Rather the parent or loved one should coordinate their estate plan so that assets can be distributed in a manner that preserves government benefits yet also enhances the special needs person’s quality of life. At Thomas Smith Law Firm we are dedicated to understanding the nuances of this area of law and applying this knowledge to your life-time oriented estate plan.
Special Needs Trusts
A Special Needs Trust is a type of trust designed to hold assets to be used for a special needs person’s benefit. The assets held in the trust can be invested and used to increase the special needs beneficiary’s quality of life. Yet it’s important to note that the beneficiary will not own the assets. Nor will the beneficiary have control over the assets. With a special needs trust the beneficiary has no discretionary authority over the assets in the trust. Yet the trustee must use the trust funds for the benefit of the special needs beneficiary.
A special needs trust is an important tool for the special needs planner. It can serve as a repository for funds that otherwise would have gone to a special needs beneficiary. It can serve as a fund for future caregivers to use while caring for the special needs beneficiary. It can also provide a way for family and loved ones to contribute to a special needs beneficiary while they are still alive.
A special needs trust should only be created after careful discernment. The key to any special needs trust is having the right trustee. Many times family members want to serve this role, yet the rules surrounding these trusts are complex. Family members should only serve as a special needs trustee after consultation with an attorney.
Another possibility for trustee is a bank or corporate fiduciary. Yet, not every corporate trust department deals with special needs trusts on a regular basis. Persons creating a special needs trust need to understand which trust departments in their area are best suited to administer the trust. At Thomas Smith Law Firm we will work with you to discern if a special needs trust is appropriate. If so we will help you vet an appropriate trustee for your circumstances.
ABLE Accounts are a relatively new tool for special needs planners. These accounts, similar to 529 college savings plans, allow a special needs individual to save limited amounts of money without impacting their government benefits. Funds in these accounts grow on a tax deferred basis. Withdraws that are used for qualified disability expenses will generally not incur an income tax liability.
These accounts differ from special needs trusts in that they are easier to set up and don’t require the use of a trustee, per se. They are also beneficial in that they allow funds to be used for in-kind support and maintenance without a corresponding offset in SSI.
While ABLE Accounts are useful they also have some limitations. Assets over $100,000 are treated as countable assets for SSI purposes. And ABLE Accounts opened in Arkansas are generally limited to a total asset cap of $336,000. Larger inheritances still need to be managed in conjunction with a special needs trust. Lastly there are annual caps on how much can be withdrawn from an ABLE Account.
ABLE accounts are important for any special needs family to know about. They have different, generally more flexible, rules than a special needs trust. Yet they are not necessarily a “replacement”. When planning for a special needs beneficiary families should consider the merit of both an ABLE Account and a special needs trust; and how they can be used together.
Coordination with Financial Planner
Our life-time oriented estate plans are always developed in cooperation with your family financial planner. Often brokerage accounts, life insurance policies, and retirement plans have a list of designated beneficiaries naming who will get the funds after you pass away. We will work closely with your planner to make sure your special needs loved one is not a named beneficiary. Rather we will work to ensure his or her share is distributed to an appropriate trust or account specifically designed to help your loved one in the future.