Danna Voth
12/01/2004
Robert and Evelyn Hausslein of Lexington, Mass., knew within a few years of their son Tommy’s birth that he was mentally retarded. “We became aware of the need to build wills and estate planning around that,” Robert recalls. Hausslein and his wife were happy that they had the means to care for Tommy, but they nonetheless needed to be sure that their help did not jeopardize his government benefits, such as Medicaid. The health insurance provided by Medicaid was important, despite the family’s affluence, Hausslein explains, “because medical expenses are just open-ended. You never know what’s going to happen.”
| “With a special-needs trust I’m able to help her to have a lifestyle that’s more than just being maintained.” |
By establishing a third-party, special-needs trust, the Haussleins were able to secure their son’s financial future. This legal instrument, a fiduciary tool that holds and disburses funds for the benefit of a child with special needs, can supplement government benefits the child may receive without putting them at risk.
With a carefully designed special-needs trust, we can find some gratification in knowing those who depend on us will be well cared for after we die. Andrew Crim of Ashland, Mass., has set up such a trust for his daughter, Carolyn, who has cerebral palsy and is mentally retarded. The trust will be funded upon his death; he says having it is critical to his peace of mind. “With a special-needs trust, I’m able to help her to have a lifestyle that’s more than just being maintained,” he explains.
The Benefit of BenefitsAs the Haussleins discovered, monetary gifts and awards that we make to our children—anything more than $2,000 a year in value—can disqualify them from receiving essential government benefits. Theresa Varnet, an attorney with Spain, Spain & Varnet in Chicago, who has a daughter with special needs, says, “Unfortunately, most of our kids, mine included, will never be able to get health insurance on their own. Depending on the magnitude of the medical condition that the child has, it’s almost impossible to self-insure.”
In addition to securing access to public programs such as Medicaid, special-needs trusts protect a child’s right to services and equipment needed by people with disabilities that are only available through government programs. Certain items may even be unattainable without public assistance. “Agencies might have better access to some kinds of durable medical equipment than someone who wants to pay for them,” says John Nadworny, a certified financial planner with Bay Financial Associates in Waltham, Mass., who advises parents on establishing special-needs trusts. Nadworny notes that even when we insist on paying the costs of our child’s special-needs care, we may not have that option. “Some agencies are not set up for private pay.”
To maintain our children’s eligibility, our wills, retirement accounts, legal settlements and insurance policies should list the trust—and not our children—as the beneficiary. All of our friends and relatives, our child’s caregivers and people assisting us with fiduciary documents should understand the necessity of keeping assets out of our child’s name. Our child cannot receive any checks or cash from the trust, even if it is only pocket money.
According to Ronnie Ringel, vice
president and trust counsel at Fiduciary Trust International in New York,
special-needs trusts can make distributions directly to third-party providers of
goods and services. For instance, they can pay for swim club memberships,
entertainment, restaurants, musical instruments and lessons, as well as the
requisite transportation to these activities. They may also pay money to people
other than the beneficiary child; such uses are often the compelling reason to
fund such trusts. According to Nadworny, trusts can secure vehicles, health
insurance and retirement benefits for our child’s caretakers. These bonuses help
us retain expert caregivers and preserve the consistent relationships that are
so important in our child’s life. Moreover, we can use the trust to provide
money to enable our child’s relatives and friends, as well as the necessary
extra staff, to accompany the child on trips.
| TOP VIEW A special-needs trust guarantees that our disabled children will be well cared for after we die. By removing all assets from our children’s names, this fiduciary vehicle maintains their eligibility for essential public services, while seeing to it that their bills are paid and their needs are met. |
Nadine Vogel, director of MetDesk, a special-needs estate planning division of Metropolitan Life Insurance in Jersey City, N.J., advises parents to work with an attorney with expertise in this area. Doctors, child psychologists, counselors and other specialized advocates can help us identify our child’s needs at various stages of development, and help us pinpoint the important investments we can make to ensure his or her well-being. Clinical social workers, special-needs consultants ranging from physical therapists to technology experts and various other service providers can assist us in ascertaining the future medical, residential, educational, vocational and social costs. Finally, a qualified financial planner can incorporate this information into the trust and allocate necessary resources.
A bank often administers and manages a special-needs trust, and family members or friends typically serve as trustees. “To find the right bank, you have to meet with the trust officers and talk to them about what their fees are, what their experience is with special-needs trusts, as well as the company’s rate of return on investments,” Varnet advises. “You want to be sure that this trust department understands government benefits.” Some advocacy groups for people with disabilities employ professionals who can serve as trustees, which can be a very helpful service in the event that we eschew our family members.
Parents usually fund special-needs trusts with a testamentary gift, through either a will or a life insurance policy. According to Nadworny, we should resist temptation to begin funding the trusts prematurely. “When people start to fund trusts early, they get taxed.” However, Ringel notes that early funding gives parents an opportunity to see how the trust may work and to become comfortable with the trustees at a time when they can still easily alter the terms of the trust.
| Our child cannot receive any cash or checks from the trust, even as pocket money. |
Letters of Intent
Even with attorneys and trustees at our side, our disabled child will depend primarily on us for his or her development and well-being. The more we can do to see that specific—even very personal—needs are met after we are gone, the more serenity we will have now. A letter of intent is a helpful tool for identifying and planning for such needs.
Although not a legal document, a letter of intent provides written instruction to the person who will be providing primary care for our child after we die. Varnet recommends creating the letter first as a digital document so that it is easy to update, both on an annual basis and when major changes occur. Software can remind us with an alert to edit the document on a regular basis; Varnet uses her daughter’s birthday as a trigger date.
We should include three main types of
information in a letter of intent: our child’s health history, personal
information and, less prosaically, our hopes and dreams for our child. Within
the health history, we should list all of our child’s physicians, including
their addresses and phone numbers. Hospitals and hospital ID numbers, schedules
of any regular appointments, results of tests and even contact information for
medical professionals we do not want our children to see again also should be
included.
Personal information about our child should contain such items as
favorite colors, music, activities and foods, as well as clothing sizes and
haircut styles. Detail what makes the child happy or nervous, what special toy
or blanket calms her down or helps him sleep. Vogel recommends explaining
sensitivities to certain colors or sounds, such as those that can cause seizures
in an autistic child.
Detailing Desires
The hopes-and-dreams section enables our trustees to
know how we would like the assets in the trust to be used, whether they are for
eating at favorite restaurants, going on trips or taking swimming lessons. In
short, we can detail the things our children love having in their lives.
We
should share the letters of intent with family members, agencies, trustees and
future guardians of our children. Barbara McGoldrick of Oakbrook, Ill., has
directed in her letter of intent that her son Steven, who is mentally ill,
should always have a functional computer. She has also indicated that he loves
to go on trips with his family and friends, and wants him to continue to enjoy
such visits after she is gone. “I feel very comfortable,” she says. “If I drop
dead tomorrow, somebody can walk in here and it’s all there.”
For the
Hausslein family, setting up a special-needs trust for Tommy has given Robert
and Evelyn basic peace of mind. They no longer worry that Tommy will lose his
government benefits or that his needs will go unmet after their deaths. “We feel
reasonably secure that Tommy will be provided for financially,” Robert
says.
Illustration by Isabelle Arsenault.