SPECIAL NEEDS PLANNING: MORE THAN DOCUMENT DRAFTING

by Thomas D. Begley, Jr., Esquire, CELA

            Planning for families with special needs members involves a lot more than simply drafting a Special Needs Trust (SNT).  Individuals with special needs, often children, grandchildren or other family members, require a considerable amount of care.  The challenge really begins once the parents are gone.  At that point, who is going to step in and take care of the disabled individual and how are funds going to be managed? Special Needs Planning involves analyzing the needs of the individual with disabilities and assembling a team that can help that individual or other family members navigate the disability system. Consideration should be given to including the following team members:

• Special Needs Attorney.  The Special Needs Attorney is responsible for gathering the initial information, discussing the various options with the client, reviewing public benefits currently being received and to which the individual with disabilities may be entitled, assisting with applying for public benefits, reviewing with a client how a trust is administered including identification of immediate cash needs and development of a monthly budget, assembling the team, and introducing the client to the various team members.
• Life Care Planner.  A Life Care Planner develops a plan for the individual with disabilities that includes both medical and non-medical services, products, equipment, housing, educational options and life-enhancing experiences that will benefit the individual with disabilities.  The Plan is based on a medical assessment and includes an estimated life expectancy along with an economic analysis of how much each item will cost.  Too many times parents of a disabled child either decide to leave the disabled child all of their estates, or worse, a proportionate share of their estates without regard to what the child with disabilities will actually need.  Ideally, the parents will obtain a Life Care Plan at the time they do their Estate Planning documents, but if not, a Trustee should obtain such a plan at the time the trust is funded.
• Investment Advisor.  An Investment Advisor is a valuable team member, especially while the parents are alive.  Investments for persons with disabilities generally are more conservative than for healthy beneficiaries, because in most instances the individual with disabilities cannot afford significant losses since they are unable to earn back any money that might be lost.  
• Trustee.  It is very important to utilize the services of a Professional Trustee, if at all possible. A Trustee of an SNT has a target on his or her back.  If the trust is not administered properly, the Trustee can be sued by the beneficiary or even public benefit agencies.  For this reason, many Professional Trustees refuse to administer SNTs. Another reason to use a Professional Trustee is that knowledge of the law is important.  The Social Security Administration and Medicaid agencies constantly change rules.  A family member serving as Trustee is generally not aware when these rule change. Investment expertise is also important. Professional Trustees generally have higher skill and experience relating to investments than do family members. Professional Trustees can avoid family friction.  If a trust is being managed for a disabled child by a sibling and the individual with disabilities wants money and the sibling rightly refuses, there will likely be friction between the two siblings.  Professional Trustees are more likely to administer the terms of the trust in a timely manner.  Occasionally, family members disappear from the lives of the beneficiaries or are so busy with their own lives they don’t have time to administer the trust the way it was intended to be administered.  To give the family some comfort, a family member can be appointed in the trust document as Trust Protector.  The Trust Protector could be given the right to remove and replace the Trustee with another Professional Trustee.  Many individuals are reluctant to appoint a Corporate Trustee for fear that fees will be charged.  It should be understood that a family member can also charge Trustee fees, and often do. Again, if a family member is named as Trustee, they should have the good sense to retain the services of an Investment Advisor who will charge fees.  Therefore, the Trustee fees to the Professional Trustee are really only a difference between what the family member would charge and what the Investment Advisor would charge, which is generally minimal.

In administering trusts, there have to be limits placed on how quickly money is spent. As a general rule, if the Trustee spends approximately 4% of the trust principal every year, the trust will last a long time.  Professional Trustees are aware of this rule and often do a Monte Carlo analysis on an annual basis to make sure that monies are not spent too quickly.

• Insurance Specialist.  Parents of children with disabilities should consider purchasing life insurance to fund all or part of the SNT.  Very frequently, once a Life Care Plan is developed, the parents can see that the amount they intended to leave to the trust insufficient to cover the proposed beneficiary’s needs.  Life insurance can bridge the gap.  The policy should be a whole life policy, because the need is not going to go away. Term insurance alone is not generally adequate for this purpose.  Life insurance should also be considered on the life of the beneficiary.  If the beneficiary has descendants, this insurance will provide for them.  If there is a Self-Settled SNT, life insurance owned by a Third Party SNT can fund the Medicaid payback on the death of the beneficiary of a First Party SNT. This is particularly important when the First Party SNT owns any illiquid assets, such as a home. Whether or not the child with disabilities is insurable is an issue that must be addressed. 

In addition to life insurance, the parents might consider disability insurance on the parents, an umbrella insurance policy for the benefit of the parents, and some form of long-term care insurance even a hybrid policy to ensure that the parent’s savings are not diverted to the parent’s long-term care.

• Special Education Attorney.  If the individual with disabilities is of school age, a Special Education Attorney might be engaged to assist in developing an Individualized Education Program (IEP) tailored to the specific and unique needs of the child.
• Accountant.  An Accountant who is familiar with preparing income tax returns for the Trustees and beneficiaries of SNTs and for the parents and legal guardians of those SNT beneficiaries who are funding the costs of their medical care and other special needs, is an important team member. 
• Guardian.  If the individual with disabilities is mentally incapacitated, a legal guardian will be required.  Parents are often reluctant to become appointed guardian of their special needs children, because they would rather not deal with the unpleasantness of admitting to their child’s vulnerabilities and the rigors of the guardianship process.

In conclusion, team building is an important facet of special needs planning and should be addressed as early on in the process as possible.