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John Bair
John Bair
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4 Critical Choices when Establishing a Special Needs Trust

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starting a special needs trustParents of children with special needs often rely on needs-based government programs to pay for daily necessities. Strictly complying with these programs – which include Supplemental Security Income (SSI), Medicaid, and others – is critical to maintain eligibility. Part of that compliance means consistently showing that a beneficiary’s income and assets are below a specified limit.

If your child receives an injury settlement or an inheritance, this influx of income could cut off his or her eligibility for these much-needed programs. Many parents have been in this situation, and one of the best solutions is to establish a special needs trust.

Special needs trusts are intended to supplement, rather than replace, a person’s government benefits by paying for services or equipment that SSI and Medicaid do not cover. The establishment process is complex, and the choices parents make will directly dictate the fees they’ll owe and the level of control they’ll have. Below are four critical choices parents will need to make when establishing a special needs trust.

1. Choose a Financial Manager

Although it’s not required, hiring an expert to manage the money – someone separate from the trustee – is a very good idea. An experienced wealth manager who specializes in special needs trusts can ensure parents are making the right moves from day one, so their child’s money is as beneficial as possible.

2. Choose Your Jurisdiction

Where you retain a trustee makes a difference. For example, with the experience of a settlement planner, parents should plan to create the trust in a state where Medicaid eligibility is needed or may be needed.

3. Choose a Trustee

Many families assume their local bank or a big national institution is the best trustee. However, this is actually the most expensive route. Trustee fees and expense ratios can run as high as three percent. Banks and other big institutions are also rarely suited for the intensity and complexity of special needs trusts.

On the other hand, many parents are eligible to be their child’s trustees, but few courts will allow it due to a conflict of interest. Trust companies that are independent of major financial institutions are typically best. Look for the following qualities when interviewing potential trustees:

  • Competence, knowledge and experience specifically with special needs trusts and helping people maintain eligibility for government programs.
  • No conflicts of interest.
  • No problem with including language in the trust agreement that would allow the professional trustee to be removed if necessary.
  • Willingness to communicate often and always keep the child’s best interest in mind.

4. Choose a Fee Schedule

A properly designed special needs trust should cost no more than 1.25 percent per year. The best choice is to hire a professional, independent trustee with a fee of around 0.5 to 0.6 percent. For example, if a trust has a balance of $400,000.00, the annual total fees might be about $5,000.00.

Getting Help

When setting up a special needs trust, the number of options for parents can be overwhelming. If you’re thinking about establishing a trust, the smartest move is to consult with an experienced financial advisor. Having the right people on your team will mean successfully navigating the trust process, so you can better focus on your family’s happiness and well-being.

 

About John Bair

John Bair is an experienced settlement planner and financial consultant. He helps families develop strategies to provide lifelong financial support for children with disabilities, catastrophic injuries, special education needs, and congenital abnormalities. Read more about John’s work and his firm, Milestone Consulting, at http://milestoneseventh.com/.