AlanKondo-238x300By ALAN KONDO, CFP, CLU

Raising a child with special needs? If so, your financial plans need to reflect that reality. Millions of American families face the emotional and financial challenge of caring for a child with special needs. For these families, financial and estate planning must go beyond traditional goals to include for the child’s current and future well-being.

In most cases, severely disabled children receive government assistance in the form of Supplemental Security Income (SSI) and/or Medicaid to help cover medical and long-term care costs. Such funding — while a welcome benefit — can complicate parents’ ability to provide their own financial support.

For instance, if a disabled individual receives an inheritance, he or she is likely to be disqualified from receiving federal government benefits until the inherited assets are depleted — at which point there may be nothing left to pay for the extras, such as a vacation or a specially equipped vehicle. This is where a planning technique called a Special Needs Trust can provide a flexible solution.

The Trust Solution

The purpose of a Special Needs Trust is to provide funds to enrich a disabled individual’s quality of life without jeopardizing his or her eligibility for government assistance. For this reason, care must be taken when drafting the trust document to specify that trust assets are to be used to meet the supplemental needs of the individual — needs that go beyond food, shelter, clothing, and medical services.

A Special Needs Trust can be established by a parent, grandparent, or other third party during his or her lifetime and/or at death. Such a trust can be incorporated into a will or trust, or established as a separate trust document. In the case of an accident resulting in a disability, a Special Needs Trust can be created as a result of a court settlement.

In addition to providing a safe funding mechanism for supplemental expenses, a Special Needs Trust offers professional investment management. Assets are typically invested and monitored for the exclusive benefit of the disabled individual.

The Trustee Question

Selecting a trustee of a Special Needs Trust is a critical part of the planning process. As such, an individual (or institution) will be given significant discretion over the distribution of trust fund assets and must administer the trust properly to ensure that its purpose is carried out. In cases where parents may no longer be available or able to attend to their child’s affairs, a corporate trustee can serve a valuable role in the management and oversight of trust assets.

A sibling or other close family member could be a good choice as trustee. However, he or she might not have the financial expertise to manage the trust funds. The trustee may need the support of a financial advisor who has both financial expertise in managing trust funds as well as experience working with individuals who have disabilities. This approach helps to ensure that the personal needs of the child will be fulfilled and that the assets earmarked for his or her care will be properly managed.

In addition to including a Special Needs Trust in the parents’ plan, it is recommended that a clause be included in the parents’ wills stating their preference as to whom the court should appoint as guardian if one becomes necessary once they are deceased. Oftentimes, informal arrangements that worked while one or both parents were living need to be formalized after the parents pass away.

If you need help planning for the current and future well-being of a child or dependent with special needs, contact your Certified Financial Planner™. Together with a qualified legal professional, they can help create a plan that provides quality lifetime care for your loved one.

This article offers only an outline; it is not a definitive guide to all possible consequences and implications of any specific trust option. For this reason, be sure to seek advice from knowledgeable legal and financial professionals.


The opinions expressed above are solely those of Kondo Wealth Advisors, LLC (626-449-7783, a Registered Investment Advisor in the State of California. Neither Kondo Wealth Advisors, LLC nor its representatives provide legal, tax or accounting advice.

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