A car accident.
A long-term diagnosis.
Malpractice in a medical setting.
When your loved one is facing a physical or mental disability, the primary focus is on their care and managing the medical and/or emotional challenges. Planning for their long-term financial future may be something you intend to get to, eventually.
Michelle Wieneke, Regions Private Wealth advisor in St. Louis, has specialized in special needs trusts for much of her career and understands the hurdles and hesitation parents may face when it comes to planning for the future needs of a child with disabilities.
“Often times when I am talking to families, they are overwhelmed with caring for their child. It can be hard to even think about what may happen when they are gone or if they can no longer take care of their loved one in the future,” Wieneke shared.
Often times when I am talking to families, they are overwhelmed with caring for their child. It can be hard to even think about what may happen when they are gone or if they can no longer take care of their loved one in the future.
Exploring a Special Needs Trust
A special needs trust can help parents ensure that children with disabilities have sufficient resources and a good quality of life.
Designed to cover the expenses that often aren’t fully covered by insurance or government disability programs, but that may enhance quality of life, a special needs trust can be a valuable resource for caregivers of individuals with disabilities that may deeply impact their lives.
This may include physical or mental therapy, computer equipment, transportation, customized living accommodations, etc. More importantly, a special needs trust can help protect eligibility for government benefits like Medicaid or Supplemental Security Income (SSI)
“Families don’t need an elaborate plan, but they do need a plan,” noted Wieneke. “If someone on SSI and/or Medicaid were to inherit money, they would be disqualified from those benefits. With proper planning, benefit eligibility isn’t impacted by a financial windfall such as an inheritance.”
Wieneke spends time really getting to know and understand the unique situation of each of her clients. That includes understanding the benefits they may be receiving, current living arrangements, and what kind of help they have or may need.
“Understanding the long-term financial goals of clients supporting a loved one with developmental, physical, or mental disabilities helps me provide the right guidance and insights on the various options in special needs trusts,” said Wieneke.
A long-term plan sometimes involves a custom-built or heavily renovated home to accommodate the individual with special needs. In these cases, Wieneke enlists the help of the Regions Natural Resources and Real Estate team when finding just the right land or existing home that works for the individual and their caregivers.
Understanding Your Options
There are two primary types of special needs trusts: Self-settled special needs trusts and third-party special needs trusts. In addition, there is a third type that may be appropriate under unusual circumstances called the sole-benefit special needs trust.
Self-settled – or first-party trusts – are taken out by the beneficiary or someone acting on their behalf with the beneficiary’s funds for the purpose of retaining or obtaining eligibility for public benefits.
“This type of trust is usually used when a beneficiary settles a lawsuit or receives a direct inheritance,” noted Wieneke. “When the beneficiary passes away, there is a payback to Medicaid for any outstanding liens and if there are funds remaining after the lien is paid, the trust states who is to receive those funds.”
Third-party special needs trusts are established by someone other than the person with disabilities as part of their estate planning. The grantor is establishing a special needs trust for the benefit of the disabled person.
Wieneke points out that with this type of trust there is not a required payback to Medicaid after the disabled beneficiary passes away.
“These funds were never the beneficiary’s assets so the funds should not be used to pay back the beneficiary’s lien,” she explained. “The special needs trust will state who the remainder beneficiaries are in these trusts.”
There is a third type of special needs trust, but it is only used in unusual circumstances. Under federal Medicaid law, someone applying for Medicaid long-term care benefits can transfer their assets into a special needs trust for the sole benefit of a person with disabilities. Under this type of trust that transfer would not disqualify the Medicaid applicant from receiving benefits.
Special Needs Trusts: Planning is Key
“Planning is key,” noted Wieneke. “Depending on the individual’s disability, not being disqualified from their government benefits is so important. A special needs trust gives someone with a disability the opportunity to improve their quality of life without disqualifying them from their government benefits.”
Wieneke recalled a case where she was brought in to set up a self-settled/first-party special needs trust for a disabled individual who had the mental capacity of a 3-to-4-year-old, and was living in a group home. When this individual’s sole living parent passed away, they were left all of the assets.
“Setting up the court approved special needs trust ensured that this individual would not be disqualified from Medicaid and SSI,” noted Wieneke. “Though because the parents did not set up a trust prior to their passing, there will be payback required to Medicaid. That could have been avoided with proper estate planning.”
John Lynn, Regions Private Wealth leader in St. Louis, reiterates the importance of having a plan and the benefits of having a specialized wealth advisor to provide the advice and guidance to navigate the nuances of special needs trusts.
“Developing a strategy to provide financially for a young or adult beneficiary with disabilities can bring peace of mind and help ensure that his or her needs — as well as those of the rest of the family — are met,” Lynn said.
“This is a nuanced area that requires experience to administer properly, and advisors like Michelle allow us to effectively manage these relationships. It feels good to be able to provide the right advice and guidance to our special needs trust clients so they can live the most fulfilling lives possible.”
Developing a strategy to provide financially for a young or adult beneficiary with disabilities can bring peace of mind and help ensure that his or her needs — as well as those of the rest of the family — are met.
This information is general in nature and is not intended to be legal, tax, or financial advice. Consult an appropriate professional concerning your specific situation and irs.gov for current tax rules. Trust and investment management services are offered through Regions Private Wealth Management, a business unit of Regions Bank. Investment advisory services are offered through Regions Investment Management, Inc. “RIM”. RIM is a Registered Investment Adviser and wholly owned subsidiary of Regions Bank, which in turn, is a wholly owned subsidiary of Regions Financial Corporation.