The search for information and direction about financial assistance (benefits and support provided by government agencies) and special needs planning (preparation for future financial needs) can be especially frustrating for caregivers. Providing information and resources to help plan for quality of life during a lifetime of care is the primary focus of a special needs financial planner.
In many states, including New Jersey, Medicaid is the primary source of services for dependents with special needs. While there are multiple ways to remain Medicaid-eligible, most often it is necessary for the individual with special needs to have less than $2,000 of assets in their name. The now widely available ABLE accounts (Achieving a Better Life Experience) allow the individual to have an account where they can deposit $16,000 per year and accumulate up to $100,000 without jeopardizing government support benefits. However, they do have a few drawbacks and typically cannot be the main source of long-term support planning. Most importantly, if a person with an ABLE account passes away with monies left in the account, Medicaid gets reimbursed for the cost of their services from the account balance remaining.
Proper financial and estate planning is vitally important so families and caregivers can plan for their dependents while preserving their eligibility for government services. Many people seek the services of a special needs financial planner because they are worried about how they will provide for their loved ones after they are gone. Over decades of planning, we’ve found that families have been concerned about three primary financial priorities for their dependent(s):
- Providing a good quality of life
- Preserving government benefits eligibility
- Providing lifetime care
Strategies to address all three center around a few basic ideas.
Wills = Notes
First, most are familiar with what it means to write a will. A will is, in simple terms, a note. If you were leaving someone to watch your home and your family while you went away for a weekend, you would leave them a note (how to reach you, what’s important to know about the house, etc.). Essentially, what a will accomplishes is to legally say what will happen to all of your “stuff”, who will become guardian of your dependents, and who will be responsible for these tasks (the executor). A will may have specific references to creating a trust and may also reference a letter of intent, a detailed plan of how you would like your dependent to live after you are gone.
Trusts = Buckets
The next thing that becomes vital in a successful financial and estate plan is the use of a trust. There are many types of trusts, so trying to understand how they work can become confusing. A special needs trust is a particular type which is imperative to allow individuals with special needs to retain government services eligibility. In simple terms, a trust is a bucket. What does a bucket do?
It holds things. As your personal legal bucket, a trust allows you to put assets in it, either while you are living or after you are gone. Those assets may be used for dependents with special needs, while not having the assets in their names.
It protects what is in it from outside sources. In the case of special needs planning, it protects those assets from eliminating government services eligibility. Plus, it protects them from unscrupulous people or civil litigation, such as divorce. A parent or caregiver could leave assets directly to another relative or caregiver, but once that asset is in that person’s name; it can become part of a lawsuit or divorce. Having the funds in the trust (in the name of the individual with special needs) avoids these issues.
It allows you to control how things come out of it. You may pour out a little at a time, dump it all out at once, or anything in between. A trust, particularly a special needs trust, allows the grantor to control assets so they may be used for a dependent with special needs even after you are gone.
The above is a basic overview to help families understand how these important documents make a difference in the lives of our dependents with special needs. Working with qualified special needs attorneys is critical to the success of your plan! The last thing you would want to happen is that, after your death, Social Security, Medicaid, or other government agencies determine that your trust doesn’t qualify as a special needs trust because it wasn’t written properly by a qualified attorney. The only things that can correct this problem are time and money…and who will correct the problem after you are gone?
Check Your Beneficiaries
Lastly, knowing that a dependent with special needs cannot have more than $2,000 of assets in their name, here is your easily done action item: make sure that no individual with special needs is a primary or contingent beneficiary of any relative’s life insurance policy or retirement plan like a 401(k), IRA, or pension. Most group life and retirement plans, as well as individual policies, use a default option for contingent beneficiaries which splits proceeds between all surviving children…therefore putting the government support benefits of your special needs dependent in jeopardy! Instead, use special needs trusts and an ABLE account to hold those funds and provide for their future.
In summary, remembering a will as a note, a trust as a bucket, and that dependents with special needs should never be direct beneficiaries on any individual or group benefits is a simple way to begin thinking about and solving the top concerns of families planning for their loved ones’ futures.
We do not offer tax or legal advice. For advice concerning your own situation, please consult with your appropriate professional advisor.
Donald T. Brown, ChFC, ChSNC
200 Schulz Drive, Suite 125 Red Bank, NJ 07701
848-200-7148 [email protected]
Donald Brown is a Registered Representative and Investment Adviser Representative of Equity Services, Inc. (ESI). Securities and investment advisory services are offered solely by ESI, Member FINRA/SIPC, 675 Third Avenue, Suite 900, New York, NY 10017, 212.661.1600. Special Needs Funding Coach is independent of ESI. TC121318(0621)1
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