One of the toughest things about planning for a child with special needs is trying to calculate the amount of money it’s going to take to provide both while the parents are alive and after the parents pass away.
Kiplinger’s recent article asks “How Much Should Go into Your Special Needs Trust?” The article explains that it’s not uncommon for folks to have done some estate planning but not necessarily special needs estate planning, even if it’s something they need for their loved ones. More importantly, they haven’t thought about how much money they should earmark to fund that trust someday or any other plan to provide for their family member and which assets would be the best to use.
Special needs estate planning involves creating a special needs trust (SNT) that allows a person with a disability to continue to receive certain public benefits. Typically, ownership of assets more than $2,000 would make the individual ineligible for certain public benefits. Assets held in a special needs trust don’t count toward this amount.
A child with special needs can generate multiple expenses. The precise amount will be based on the needs and lifestyle of the family and the child’s capabilities. Public program benefits can in many cases offset many of the above-mentioned costs. However, these benefits likely will not cover the entire cost of care.
When the parents die, the budget needed to care for the child often must be increased because the things the parents did must be monetized. For instance, the parents likely managed and coordinated the child’s care holistically. After they pass, a care manager may need to be compensated to do the same thing. There are also legal and trust administration expenses to think about.
An SNT usually isn’t funded until the parents’ death. At that time, the trust would need to file a tax return each year and pay taxes on any income made by the trust assets.
It is vital to conduct a complete analysis of the future costs to provide for a child with special needs so that parents can start saving and making adjustments in their planning. If this is something you are concerned about, speak with an elder law or estate planning attorney about creating a special needs trust.
Reference: Kiplinger (June 10, 2019) “How Much Should Go into Your Special Needs Trust?”