One of the biggest decisions you’ll face in setting up a special needs trust (SNT) is naming who will serve as the trustee – in other words, who’ll be in charge of managing and spending money for your adult child after you no longer can. The wise grantor setting up the special needs trust (that’s you!) will consider several factors when making this important choice. Although you can wait to make the decision while the SNT documents are being prepared, giving it some thought beforehand is a good idea.
(Before reading any further, please note that if your adult child has a pooled trust, you’ll be off the hook for choosing a trustee. The nonprofit organization that maintains the pooled trust will appoint a trustee to manage the fund. Go back to Part 3 to learn more about the pros and cons of pooled trusts.)
Most of the time, families create a special needs trust that requires the selection of a trustee. It’s nice to have that control – but how do you choose?
This discussion about SNT trustees on the Nolo website is clearly presented and covers the important points. For those of you who don’t like to follow links, I’ll rephrase what the article says.
Usually, the parent(s) of the disabled child are the trustee(s) of the SNT until no longer able. Once the last parent of your adult child dies or is incapacitated, the trustee you’ve selected – the successor trustee – will have to handle these and other tasks:
- enhance the beneficiary’s life by using the trust fund to purchase goods and services (except food or shelter)
- make the trust fund last as long as possible. Sometimes that can mean saying “no” to a spending request.
- manage the fund to earn dividends or interest
- keep records
- file reports for SSI and Medicaid
- file taxes
Most of us will look to family members as candidates. The ideal trustee would have these attributes:
- be willing to serve as trustee
- be capable of performing the duties well
- be trustworthy to act in the beneficiary’s best interest – as opposed to increasing his or her own wealth
- be willing to follow your wishes, and to follow the laws and rules (no mavericks, please!)
- have familiarity and empathy with the beneficiary – living nearby is a plus, too
- be expected to live years beyond when you check out. For instance, your grandfather is probably not the greatest choice (even if he is as sharp as a tack and fit as a fiddle).
Some of us do not have an individual relative who would meet these important criteria. But, you might have two or more family members who each have some attributes that in combination would fit the bill. Happily, you’re allowed to appoint two or more c0-trustees. That can raise other issues, though: would they work well together, or argue a lot? Also, you’d have to decide whether to allow each trustee to act alone, or stipulate that all trustees must agree to every action regarding the trust.
Your attorney may ask you to name a few candidates and rank them in order of preference. That way, if your first choice dies or has a change of heart, the second person on the list will get to do the honors, and so forth. Perhaps at some later date you’ll want to scramble the order, or add or subtract a potential trustee. No problem – that can be accomplished by updating the trust documents.
If you’re not seeing a willing and able candidate among family members, an alternative is to hire a professional or corporate trustee. They may be found in institutions such as banks, savings and loans, law firms, trust companies, or brokerage houses. While such professionals know how to manage trusts, they may not have much experience with special needs individuals, and they don’t know your special needs individual. Some institutions won’t even agree to the task unless the trust fund is “large enough.” The “large enough” threshold may be on the order of $250,ooo or even $1 million.
Your attorney, special needs financial advisors, and others in the special needs community may be able to recommend professional trustees who have done well for other families.
According to this attorney, the size of the minimum annual fee charged by professional trustees makes them an expensive choice for small trust funds. She suggests pairing a professional and a family member as co-trustees for larger trust funds, and using family members or pooled trusts for smaller SNT funds.
Assuming you select a non-professional as trustee, you’ll want to give him or her as much support as possible. Other than naming a co-trustee, here are some ways to do this:
- use a trust protector or advisor. These individuals have no legal authority over the trust but are knowledgeable about issues such as investment strategies or compliance with SSI and Medicaid rules. The trustee is advised to consult with them for guidance.
- provide a written description of the trustee’s duties. This may be a letter included with the trust papers, a book, etc.
- provide background information about the needs of the beneficiary. It could be a document compiled for the trustee, or maybe a copy of the special needs letter of intent you’ve created.
- name the trustee as a remainder beneficiary of the trust property after the trust ends. While it is thoughtful to provide monetary compensation for his/her work as a trustee, consider whether this arrangement might corrupt how the trustee would manage the fund during the beneficiary’s lifetime. As Nolo puts it, “every dollar spent on the beneficiary is a dollar that the remainder beneficiary won’t receive.”
Here’s how the trustee-choosing process played out for us:
Before meeting with our attorney, we had a vague idea about whom we’d name as trustee. Since we were creating our living trust and healthcare directives at the same time as the SNT, we were shuffling lists of our relatives: “this person can be #1 for special needs trustee; that person can be #1 for my power of attorney for health care,” etc.
We ended up choosing one of Nathan’s aunts as the trustee on his special needs trust, with other aunts as the alternates. None of them live in the same town as Nathan, so there’s an issue that may need a workaround when the time comes. As our nephews and nieces mature, some of them may end up on the list as replacements.
Among our trust documents, our attorney included a ten-page letter of instructions for the trustee – in plain English, not legalese! Ten pages sounds like a lot, but it covers several “what-if’s” that may never be a factor. Better to have too much information than not enough. The documents also included a flier from a local wealth management group that has helped many trustees of SNTs in the past.
The attorney and his paralegal emphasized to us that they’ll be available to answer any questions the trustee may have.
As you can see, choosing a trustee is a challenging task. Being a special needs trustee is a challenging task too: those of us who aren’t angels would prefer taking a giant step backward when asked. Hopefully, you’ll be able to find (or hire) a person who is competent, reliable, endowed with common sense and a big heart – and who steps forward when asked.
The first installment on special needs trusts laid out the arguments for creating a SNT. To recap: a special needs trust allows your disabled adult child to collect government benefits while also being provided for by the funds you’ll leave behind after your demise.
Since you are now completely convinced that your family should have a special needs trust, the next step is deciding who will prepare it. Will you do the deed, or an attorney? And if it’s an attorney, which attorney?
Part 1 mentioned the possibility of saving money by preparing your own special needs trust. This option may turn out all right for some people, but be forewarned that SNTs can be very tricky. For instance, laws and regulations may change over time – will you be certain you’re up-to-date? Goofing up the wording or leaving out something crucial can mean the difference between stable comfort and low-income chaos for your adult child after you’re gone.
Nevertheless, if you are a confident do-it-yourselfer, ordering NOLO’s book on special needs trusts could be a good place to start. The 6th edition came out this year. According to NOLO’s website, the book will help you determine whether or not your situation really demands an attorney. If it seems you don’t need a lawyer to create your SNT, the book will guide you through the process.
What if you’re not so confident and don’t have the time? I’ve skimmed through several attorney websites regarding special needs trusts. Here’s a shocker: they all say you need an attorney to create a special needs trust. (You didn’t see that coming, did you?) However, even websites run by nonprofits and organizations such as The Friendship Circle, NAMI, and AARP recommend hiring an attorney for this important task.
But you don’t want to hire just any attorney – you’ll want one with depth of experience and knowledge about SNTs.
When we were starting to look for an attorney, our current financial advisor offered a rare piece of questionable advice, suggesting a local attorney to us because “he’s done plenty of trusts; I’m sure he’ll know about special needs trusts.” Maybe – but it could be like expecting an orthopedic surgeon to do a flawless job on your coronary bypass.
This discussion from NAMI suggests how to evaluate the attorneys you are considering. A lawyer who demonstrates understanding of special needs family dynamics would be a plus. Perhaps best of all would be an attorney who also has a disabled family member. (Hiring such an attorney also fits a broader idea I’ve seen promoted: boosting our special needs community by supporting enterprises run by individuals who face the same challenges we do.)
I’ve noticed that special needs and elder law are often specialties shared in a particular law office. You may want to consider such a law firm if you additionally have legal concerns regarding a senior citizen in your family.
To find a suitable attorney, here are some places you can look:
- Special needs events. The vendors’ booths at conferences might have at least one attorney specializing in these matters. I first learned about SNTs at a resource fair, where Dignity Group was one of the vendors. This organization consults with families at no charge, informing them about lifecare plans, entitlement programs, conservatorships, wills, and trusts. They offer suggestions specific to each family’s situation. An attorney is part of the Dignity Group team and prepares trusts for a reasonable fee.
- Financial planners. If you encounter a special needs financial planner, he or she will probably be able to recommend appropriate attorneys for you. I “met” one such planner online, and later we used his services. He suggested three attorneys in our general area.
- Support groups, or word-of-mouth. My first encounter with the attorney we eventually chose was at a local Learning Disabilities Association meeting, where he gave a presentation. I later learned he had prepared the special needs trusts for the chapter president and treasurer, who had nothing but good things to say about his work. And yes, our attorney has a special needs son.
- The internet. You can use your favorite search engine, or perhaps try a locator application, like this one on the Special Needs Alliance website.
The most suitable lawyer for you may not be close by. Special needs attorneys don’t seem to be as numerous as, say, divorce attorneys. We live in the populous metropolis (that’s fun to say!) of Southern California, yet the closest special needs attorney for us was at least 20 minutes away on the freeway (or an hour’s drive in bad traffic). The office of the attorney we ended up hiring was a 50-minute drive. Thankfully, we only needed to make the trip twice: for the initial consultation, and for the meeting where we reviewed and signed the documents his office had prepared for us. All communication in between was handled by email or snail mail.
Congratulations – you’ve made it to the end of Part 2, without dozing off. Now you know a little bit more about what to look for in a special needs attorney, and where to look for one. Good luck with your search!
[Source of the graphic: www.collablawtexas.com]
Special needs trusts: you’ve probably seen the phrase. Maybe you have a vague idea that they involve the inheritance for disabled adult children, and an even fuzzier idea that you should set one up. But dang – they sound complicated, boring, and expensive. Anyway, who has the time or energy to think about the distant future when we’re overwhelmed in the here and now?
Yes, it’s easy to procrastinate, or to talk yourself out of creating a special needs trust. No government agency is going to penalize you for failing to set one up. Nor will a big brute with a heavy object clobber you if you don’t create one.
It took my husband and me five years of saying, “Yeah, we should do that” before we finally set up a special needs trust (SNT). And guess what? The process wasn’t as complex as we’d thought it would be, and the expense was reasonable for what was done. (Boring? Well …).
My goal in writing about special needs trusts is to motivate you to set one up also. You’ll then have the satisfaction of knowing you’ve made the future life of your disabled adult child the best you possibly could.
I’ll try to make the discussion about special needs trusts as clear and non-boring as I can. As part of that commitment, I’ll spread the discussion out over several posts, so your eyes won’t cross from reading one massive discourse about SNTs.
To start, we’ll look at the basics of a special needs trust, followed by my attempts to poke holes in reasons for avoiding setting one up.
SNTs in a Nutshell
Special needs trusts are in the same category as wills, living trusts, estate plans, etc. – they come into play after you, and your spouse (if applicable), have passed away. We don’t like to think about our death, but it’s guaranteed to happen (unless you’re immortal, in which case you’re excused from reading any further).
The idea of special needs trusts came about due to the “wealth” limitations for being covered by SSI and Medicaid: a disabled individual is disqualified from receiving benefits as soon as s/he has assets in excess of $2,000. If the individual’s assets exceed $2,000 after inheriting money directly from parents or other well-meaning relatives, poof! – there go the benefits.
So while you’re still alive and incredibly with it, you create a special needs trust for your disabled son or daughter. As part of doing so, you name a trustee: someone who will monitor and distribute the trust funds to cover your child’s expenses other than food and shelter (which are supposed to be paid for with SSI money). You also create an account that sits in the trust, ready to hold inheritances or other contributions. Because your child will have no control over the money in the trust, the money is not counted as part of his/her assets, so the government benefits are not jeopardized. Ta-daa!
Your special needs trust:
- ensures that your disabled son or daughter can have an inheritance of whatever size available to sustain his/her quality of life, while also continuing to be covered by SSI and Medicaid.
- designates someone you trust to spend funds for the good of your son or daughter, based on your documented wishes.
- avoids probate costs.
- documents the final arrangements you want for when your daughter or son passes away.
- specifies how the funds in the special needs trust will be distributed after your child has passed away.
- can be updated as circumstances change.
Future posts will go into more detail on many of these points. But, if you can’t wait to learn more, other sources have information on SNTs. This link from NOLO is titled “Special Needs Trusts – The Basics.” CNBC has a clear discussion. And here is another discussion from the Special Needs Answers website. Books (remember them?) also have been written about SNTs. And if you attend a conference related to disabilities, check the vendors’ exhibits: chances are an attorney or a special needs financial planner will be among them.
Reasons to avoid creating a special needs trust, and counterarguments
1. Good health. You aren’t planning to die anytime soon: you are healthy, with lots of years between now and Your Deathbed Scene.
I am glad to hear you are healthy. Truly, that is good news. Now I hate to point this out, but Life has a way of throwing curveballs. For instance, all it takes is one car accident – one driver not paying attention – and your son or daughter could be facing life with you gone or incapacitated, like, tomorrow.
2. It costs too much. Money doesn’t grow on trees!
Doing nothing now costs you nothing (now) – this is true. I read somewhere that more than half of families with children with disabilities haven’t prepared a will, let alone a special needs trust. Without a will in place, the inheritance is distributed among your heirs as determined by the legal system. If that means the disabled child ends up with more than $2,000, SSI and Medicaid go away.
Wills by themselves are less expensive to create than trusts. You can download create-your-own-will forms for free, or hire an attorney, who might charge $200 – $600 for the task. However, wills won’t bypass the problem of losing government benefits. Also, probate costs significantly diminish the size of the inheritance. The next generation sure could use that money….
Living trusts and special needs trusts avoid these pitfalls, and have other benefits. But they do cost more for attorneys to prepare. Legal Zoom says attorney fees for creating a trust may range from $1000 -$1500 for an individual and $1200 – $2500 for couples.
Sticker shock? It is possible to prepare a special needs trust on your own, as this link from NOLO points out. I like how it discusses the pros and cons of do-it-yourself vs. hiring an attorney, depending on your circumstances. To prepare your own, you’d need time, persistence, a clear head, and attention to detail, among other attributes. Doing it incorrectly could have big consequences.
Although we did-it-ourselves for a couple of legal procedures in the past, for our special needs trust we opted to hire an attorney. His fees were $2,000. In addition to an SNT, our attorney and his paralegal prepared: updated wills for each of us, a family trust, healthcare powers of attorney, medical directives, and a few other documents. They also supplied instructions for the trustee of the special needs trust, which will be very useful when the time comes. All of this and more, plus their expertise – we felt we got our money’s worth.
And think of it this way: $2,000 translates into maybe 3-4 months of SSI at today’s payout rates. Isn’t it worth spending that much now to preserve years of your child’s SSI payments in the future? And for the individual to have medical coverage?
3. Depend on a sibling. You can leave your child’s share of your inheritance to another son or daughter, who can be trusted to follow your wishes in using that money for the sibling.
This scenario could turn out fine. However, as the CNBC discussion points out, the trustworthy son or daughter at some point may face a lawsuit, bankruptcy, divorce, or unexpected financial troubles – and that set-aside for their sibling could shrink a lot. A trust protects those assets from claims, creditors, and temptation.
4. Your son or daughter isn’t currently covered by SSI or Medicaid. Why set up a special needs trust to protect benefits s/he isn’t getting now?
The key word in that argument is “now.” Do you have confidence that your adult child will earn money consistently enough to be self-supporting for years and years? If they are chronically unemployed or employed part-time, will they have health insurance? After you set up the SNT, it’ll be there if and when your child needs it.
5. The new ABLE accounts will make special needs trusts obsolete. Right?
Not exactly. Here’s an earlier post about ABLE accounts. These accounts allow some disabled individuals who receive government benefits to have assets up to $100,000. However, there is a $14,000 annual limit on contributions to an ABLE account. And that $100,000 overall limit may be a problem for sizable inheritances.
Anyone with more arguments or expertise: feel free to comment!
Meanwhile, here’s the Big Idea: despite some hassle and expense, creating a special needs trust is worth it, to extend your love and care for your special needs child beyond the time your loving, caring heart has thumped for the last time.
UPDATE: I found this lively article on SNT procrastination, written by an attorney, after publishing this post. You’ll see some of the same arguments and counterarguments, plus more!
[Source of the graphic: Slideshare.net – Katherine Zacharias]
Those of us who are parents of atypical young people may be so involved with their day-to-day or near-future needs that we don’t give much thought to the long term. Either we don’t have time, or when we do have time we’d rather think about something else. The consequences our own mortality are usually far down the list of Things We Like to Think About.
But you know, at some point, we’d better consider the future.
Maybe we don’t expect to die for another few decades at least. On the other hand, all it takes is a car crash, and suddenly our atypical young adult doesn’t have a parent to intercede between him or her and “The World.”
How would your kiddo manage? Would a relative or close friend be able to step in and fill most of the role you play? Would you leave enough money for your child to get along?
As you probably know, this gets into the realm of estate planning, which involves attorneys and financial planners. When you’re ready to get going on wills and trusts and inheritances, it’s best to find professionals who specialize in helping families like yours. (Trusts and so forth will be the subject of future blog posts.)
Well, what if you’re not ready to hire an attorney? Is there something else you can do to help your child in case you kick the bucket sooner rather than later? Yes indeed – you can write what’s called a Letter of Intent.
In general terms, a letter of intent is a document that can cover a lot of situations, like accepting a business offer. What on earth does that have to do with our families, you might ask??
Ah, but if you Google “special needs letter of intent,” you’ll find what we are talking about. A special needs letter of intent is kind of like an instruction manual about your son or daughter, to be read by the adult who’s going to be involved in your child’s life after your demise.
It isn’t a formal legal document. You can write one and update it at any time without an attorney’s assistance.
Several special needs attorneys and financial planners maintain websites that include discussions of letters of intent. For example, here’s a link to one attorney’s website, and here’s one to the website of a financial planner. Many of these websites include sample letters of intent, or suggestions on what to include, or a form that you can download and fill out.
In addition, some nonprofit special needs websites also talk about letters of intent. “Life After IEPs” is a website where the focus is on post high school children. Their discussion on letters of intent includes a link to a worksheet for gathering information from your son or daughter, allowing him or her to have some say about what’s in the letter.
All of the links above discuss what you should you put in the letter of intent. For the most part they mention the same types of information, while suggesting different ways to organize the content.
Here’s a partial list of commonly recommended content:
- Name – full name, nickname, previous names
- Numbers – Social Security, address, phone numbers, clothing size, shoe size
- Siblings – names, addresses, phone numbers
- Relationships – marriages, offspring, special friends, close relatives. Contact info and important dates.
- Guardians/trustee/representative payee/ power of attorney – names and contact info. Or, will any of these be needed in the future?
- Final arrangements for your child – what has been arranged and paid for; what are your preferences
- Vision/hearing/speech/mobility issues
- Blood type
- Health insurance info
- Current and previous physicians, therapists, etc – contact info, frequency of appointments, reasons for visits
- Prescriptions and over-the-counter medications
- Dietary needs and habits
- Current living situation, and preferences for future housing
- Daily living skills – level of independence
- Emotional state – include how to handle/avoid/minimize negative reactions
- Likes and dislikes
- Sleep habits
- Personal finance
- Schooling – past, present, and future
- Employment – past, present, and future
- Leisure and recreation
- Your feelings and vision about your child’s future
Some of the topics suggested may be very important for your child, while other types of information might not pertain to your child at all. You can add other topics not included in the suggested content. In other words, you can customize the letter of intent so it contains all the useful information relevant to your child’s situation, in as much or as little detail as needed. Make sure to cover the things your son or daughter can’t be counted on to tell your successor.
It’s important to note that a good letter of intent doesn’t cover only the facts. It shares the equally useful insights for getting along day by day, such as: what sets your son off, what calms your daughter when she’s angry, what makes him laugh, what are her favorite shows, how best to introduce a change in routine, which foods will be rejected – whatever you think would be important to know.
(The letter should not include details about your income and assets. That information can be documented elsewhere.)
So, this is not a letter you are going to bang out in an hour! It’ll take many sessions to do a proper job.
To save time, you could cheat a little – I won’t tell on you. For instance, instead of listing out all the medical history, you could say “A file folder containing all of Taylor’s medical records is located towards the back of the top drawer in our filing cabinet.” Just make sure your successor will know how to access the information he or she needs.
Most of the websites indicate that you review the letter of intent annually and revise it as needed. They also suggest sharing the latest version with the person(s) who are most likely to be involved with your child, or at least telling your successor where to find the letter among your important papers.
I am in the midst of preparing a letter of intent for our son Nathan. I’ve spent 5-6 hours on it so far, and am maybe two-thirds done. It isn’t the most fun I’ve ever had, that’s for sure! But I chip away at it a section at a time, reminding myself how useful this document would be when we’re no longer around.