Families with special needs children face many challenges. This includes financial planning for their future.
Alex Johnson is an attorney and partner at the Virginia Beach office of Pender and Coward PC. He says the main financial goal is to ensure their private assets are available while at the same time not jeopardizing their public benefits such as Supplemental Security Income (SSI). This government benefit is available for physically, intellectually and mentally disabled people.
“The mistake made, many times by a well-intended relative, is to have a special needs person inherit a large amount of money. In most cases, this inheritance disqualifies them from continuing to receive government benefits,” Johnson says.
Before the special needs person is able to qualify for benefits again, they must spend down the inherited amount to $2,000, he says.
Johnson recommends a special trust be established to provide a monthly allowance so the inheritance will not interfere with their government benefits.
The amount given each month can act as a cushion to extend their supplement, he adds.
The trust might give specifics as to what the money may be used for.
“There can be a laundry list of supplemental needs such as dental care, physical recreation, transportation and phone service. Basically anything that improves quality of life,” he says.
While it can be specific, Johnson warns that it not be too strict.
“Because you never know what the special needs person may need in the future,” he says. “Overall, anything but food, shelter and clothes,” Johnson adds.
The trust should be administered and managed by a third party, known as a trustee. Who to choose may depend on a variety of factors including the amount to be set aside in the trust.
It should be determined by the person giving the inheritance. Johnson says it can be a family member. However, he cautions that if a relative such as a grandparent, is providing the inheritance, in some situations it may be wise to consider naming someone other than the parents of the special needs person as the trustee.
“They can be a little too close to the situation. This can be an exception if there
are parameters,” he says.
It can also be an outside party such as a social worker or attorney. Mainly, they need to understand the legal instructions, Johnson says.
It is also important to ask the person if they are willing to be the administrator.
“You will be amazed how many times people are named and did not know until it was thrust on them. They may not want the job,” he says.
Another downside to not establishing a trust and giving a lump sum to a special needs person outright, is that the beneficiary will then have to seek approval from the local court to establish a trust to preserve their benefits.
In addition to creating a trust for the special needs person, it should specify what should happen to the remainder of money if the special needs person passes away before the money is spent, Johnson says.