April 18, 2024
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Linking Northern and Central NJ, Bronx, Manhattan, Westchester and CT

Part three of four articles on Financial Planning for Special Needs Families

In the initial article of this series, “If the Patriarchs Were My Clients,” we proposed six tenets for Special Needs Family Planning. They were:

1. Create a written financial plan

2. Create a Will and other Estate documents

3. Choose your fiduciaries wisely

4. Create a Special Needs Trust

5. Fund your trust

6. Create a Letter of Intent—Share your love

This article will focus on steps three and four; choosing the right helpers and one of the legal profession’s great inventions, the Special Needs Trust.

Growing up in suburban Long Island, a second generation American, it is not surprising (although perhaps disappointing) that I did not learn much of the mamme loshen—the mother tongue. Nevertheless, my Grandmother would, from time to time, verbally hit me aside the head with one of her classic Yiddish expressions. These I often appropriated and found most useful on my secular friends. However, there was one expression that I was never able to integrate into a conversation, until now!

Like every good one-liner, it needs a setup, so permit me to digress. In our financial services practice, one of the first questions we ask a new client is, “Do you have a will?” The answer, it seems, is almost inevitably “no.” Most of our clients don’t neglect their wills because they don’t have the time, or because they don’t want to pay the legal fees, or even because they don’t consider it important. We have found that they often don’t have wills because they are afraid to make the wrong decision about who should be their fiduciaries. The fiduciaries are the executor, the guardian, and the trustees. Clients are often afraid that someone they pick won’t be able to do the job, or they are afraid of offending someone by not selecting him. Often they just can’t think of anyone who they trust. This is particularly true when a special needs child is involved. Well, as my Grandmother would say, “Di Vakst vi a tsibele mitn kop in dr’erd!” You grow like an onion with your head in the ground. A time comes when you must pluck your head out of the ground and make hard decisions.

Here are a few pieces of information to help make the decision process easier. To start, you should understand the different types of fiduciaries. The Executor executes your Will. He cleans up after you, distributes your assets to the heirs and trusts and pays your outstanding bills and taxes. The Trustee manages and distributes assets left to a trust for the benefit of an heir, such as a minor or disabled child. The Guardian raises your child if you cannot. Choosing a Guardian is perhaps the most difficult planning decision you will make. The Guardian will be responsible for your child until he or she reaches the age of majority (usually 18). For families with special needs children, the Guardian is taking on a commitment that may last your child’s entire life.

It is important to know that your selection of fiduciaries is not irrevocable. They can be changed and sometimes should be. Grandparents can become too old or pass away; siblings grow up and can take on fiduciary responsibilities; trusted friends move in and out of one’s life. In addition, the fiduciary can have multiple roles or just one. It may be most convenient and appropriate to have the Guardian of your child also be the Trustee of his assets. However, if the Guardian isn’t comfortable managing money or, if you feel it creates a conflict of interest, select someone else to be the Trustee. Further, fiduciaries can hire help. If a fiduciary is not familiar with the financial, legal, or accounting issues of the role he has been tasked with, he can hire professionals to guide him. This includes assistance navigating the educational or governmental services available for the special needs child, or even emotional support in dealing with the new responsibilities. The cost of that advice is usually paid for by the estate.

If you are worried about offending a friend or family member by not selecting them to be a fiduciary, it is important to know that you only need to discuss your selection of fiduciary with the candidate of your choosing. You are not required to tell anyone else. If you cannot think of an appropriate person for any of the fiduciary roles, there are professional fiduciaries available, including banks, trust companies, legal firms, charities, and more.

Finally, think about your choice of fiduciaries before you sit down with the lawyer. The lawyer’s office is not the best place to have the argument with your spouse about whether your sister would be a better choice than your spouse’s brother.

My estate planning instructor taught me that families with special needs members have two fears: (1) assets set aside for their loved one will be consumed to meet medical costs or (2) having assets will disqualify that special needs individual from receiving government aid. A simple and elegant strategy for addressing both concerns is to create a Special Needs Trust, sometimes referred to as a Supplemental Needs Trust.

A special needs trust directs the trustee not to use trust assets for any purpose that would overlap with the benefits provided by government agencies. Agency benefits usually include only the basics: food, clothing, and shelter. If you take a minute to think about what you spend money on for yourself and your kids, the list includes education, entertainment, travel, transportation, hobbies, and sports, to name a few. It goes well beyond the basics covered by the agency benefits, and that is the role of the special needs trust—to provide those elements that enhance life and add fun and depth to every day.

Usually, a special needs trust is funded upon the death of the parents of a special needs child. Until then, parents can provide what a child needs without gifting assets to them. Wording in the will directs any inheritance for that child to the supplemental trust rather than to the child directly.

The asset threshold for disqualifying someone from receiving government aid is exceedingly low. For supplemental security income (SSI), it is $2,000 (or $3,000 if married); for Medicaid it is about $14,500. While parents may plan to fund the trust upon their death, it is often a good practice to create the special needs trust ahead of time. That way others, such as grandparents, have an appropriate place to direct their gifts. Even a good haul from a bar mitzvah can create problems, although most government programs usually kick in after the special needs individual has completed the educational programs, around age 21 or 22. So there is plenty of time to spend down the bar mitzvah gifts.

One last thought. Some clients avoid the trust structure by passing on all the assets to another child and charging them with the responsibility of taking care of their special needs sibling’s financial needs. Divorce, college financial aid, unemployment, or other economic stresses can often get in the way of that being an effective strategy.

Choosing fiduciaries and setting up an appropriate structure for providing for heirs is certainly a challenge. While mistakes can have long-lasting and significant consequences, planning correctly can help avoid them. A good and knowledgeable attorney and qualified financial professional can be invaluable guides that can help you sidestep a minefield of issues, but it is imperative that you drive the process. As my Grandmother was fond of saying, “take your head out of the ground” and just do it.

This general information is not intended and should not be construed or relied upon as legal advice. AXA Advisors and its affiliates and associates do not provide legal or fiduciary advice or services and you should consult with your own qualified professionals regarding your particular circumstances.

Zev Grossman and Bruce Maier are registered representatives who offer securities through AXA Advisors, LLC (NY, NY 212-314-4600), member FINRA, SIPC, investment advisor representatives who offer investment advisory products and services offered through AXA Advisors, LLC, an investment advisor registered with the SEC, and agents who offer annuity and insurance products offered through AXA Network, LLC. AXA Advisors and its affiliates and associates do not provide tax, accounting or legal advice or services. Please contact your tax and legal advisors regarding your particular circumstances. AGE-89835(11/13)(exp.11/15). The authors can be reached at [email protected] or [email protected]

By Zev Grossman and Bruce Maier

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