People with special needs often rely on needs-based government programs to pay for daily necessities. Complying with the rules of Supplemental Security Income (SSI), Medicaid, and other programs 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 you or your child receives an injury settlement or an inheritance, this influx of income could cut off eligibility. Many people have been in this situation. One solution 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.
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 beneficiaries or their parents are making the right moves from day one.
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.
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.
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.
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. Feel free to give us a call to learn more.
A West Point graduate where he served as captain and military aviator, John Bair continues his commitment to our country through his efforts within the settlement planning industry. He has represented families of victims lost in the Flight 3407 crash, offered pro bono services to the families of 9/11 victims and drafted the first consumer protection bill for plaintiffs (H.R. 3699).