Trust discussions are robust in meaningful relationships, and they should be. A “trust” of any nature is a document that expresses your wants, hopes, and desires while you are alive and after your passing. Just as you have trust in a relationship, trusting your document and those with responsibilities in the trust are crucial to obtaining your objectives.
Dean Huddleston, a Senior Financial Planner at the Financial Enhancement Group, cleared the air on Special Needs Trusts, and he brings this insight with personal family experience. The purpose and the need for a dedicated trust for our loved ones with varying conditions or issues may suggest the need for documents different from those of other heirs. Getting this wrong can lead to inefficient financial decisions that can lead to frustration, devastation, and financial regrets.
A Special Needs Trust or supplemental trust provides protection and management for assets for specific beneficiaries. The trustee takes receipt of assets during the grantor's life or at death and distributes them to the beneficiary as needed.
The purpose of the trust is to help individuals who are physically or mentally challenged and, in some cases, chronically ill who are or will be receiving public assistance that is rightfully due them according to the public statute. These assistance programs have strict rules about the amount of “outside income and its use” a qualified individual can receive and remain in the program. The value of the assets placed in the trust does explicitly not count toward the purpose of qualifying for public assistance. Having an attorney experienced in drafting these documents is essential.
This legal fiduciary arrangement has a Trustee who manages the assets and disperses funds when needed. Selecting a Trustee can be difficult, considering the duties can span numerous years or decades. The person in charge must know the beneficiary's program and keep up to date on changes that could affect the financial decisions.
These are just a few of the considerations a trustee should be prepared to accept.
1. Disbursements balanced by current needs and future longevity.
2. Does the request satisfy the rules of the trust and the assistance program guidelines?
3. Will anyone else benefit from the expenditure – family members, or the trustee? The trustee must understand the fiduciary responsibility to protect the beneficiary.
The number of families impacted by beneficiaries with particular circumstances appears to be on the rise. Parents often leave life insurance, stocks, bonds, or cash to all the children equally. If a special needs individual is among them and is/or at a point in the future applying for government assistance, the kindest of gifts could have disastrous results. Families naturally desire to distribute “equally” among their heirs, but circumstances and laws suggest that individualized documents are encouraged.
The impact on families now and in the future can be determined by the best-executed strategies today. Work with a fiduciary-focused financial planner and a qualified attorney to help guide you in this area. Your beneficiaries will thank you for the effort later.
Joseph A. Clark is a Certified Financial Planner and Managing Partner of The Financial Enhancement Group, and an SEC Registered Investment Advisor. Contact Joe at yourlifeafterwork.com or 800-928-4001. This article was co-authored with Dean Huddleston. Securities offered through World Equity Group, Inc. Member FINRA/SIPC. Advisory services can be provided by the Financial Enhancement Group (FEG) or World Equity Group. FEG and World Equity Group are separately owned and operated.