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Articles: Benefits of a special-needs trust

Estate planning is important for virtually every adult, but it is particularly critical for the parent of a dis abled child.  If you are in this situation, your natural first inclination is to ensure that the disabled child’s needs are met throughout his or her life. Nevertheless, if there are other children in the family, you might also try to preserve a portion of your wealth for those children without special needs.

Possible solution:  The family may use a “special needs trust” to supplement public assistance available to the disabled child.  (It is also referred to as a “supplemental trust” in some financial circles.)  In essence this is an irrevocable trust designed to provide additional funds for the use of the disabled child. The trust assets and income of this irrevocable trust can be used for items such as travel, education, recreation, rehabilitation and medical expenses that are not covered by public assistance.

The trust must be drawn up to ensure that the trustee is directed to use the assets only to supplement benefits available to the disabled child.  If the trust funds can be used as a primary means of support, the individual may be ineligible for public assistance, including Medicaid.

For example, typical trust language that directs a trustee to use trust funds for support, maintenance, welfare and education of the disabled child should not be used. If trust funds can be used for basic support items, the funds may be con sidered assets that are “available” to the disabled child in determining his or her eligibility for benefits.

Be aware that some states have enacted laws that exclude the assets in a special-needs trust when determining eligibility for benefits.   In certain states, assets remaining in the trust when the disabled child dies must be used to pay back benefits provided during the child’s life.  Nonetheless, the trust assets will be available to meet the child’s special needs throughout life.

Care should be taken to coordinate the special-needs trust with the parents’ entire estate plan.  A special-needs trust can be set up by a will or during the parents’ lifetime.

In this case, money can be set aside periodically during the parents’ lives.   However, funds placed in a special-needs trust will not qualify for the $13,000 annual gift-tax exclusion.

Due to the restrictions on the use of the trust funds, the tax law considers this type of trust to be a gift of a future interest, which is not eligible for the exclusion.  To shelter the trust contributions from the gift tax, the parents will have to use the lifetime gift-tax exemption available for other transfers. For 2012, the exemption can shelter $5.12 million from tax.

Caution: This article only discusses some of the issues concerning a special-needs trust.  Seek professional assistance with respect to your personal situation.

If There’s a Living Will, There’s a Way

In brief, a living will is a legal document that specifies your intentions concerning medical treatment in the event you become men- tally or physically impaired or are terminally ill. The document can be as short as a paragraph or two, or as long as several pages.

The primary purpose of a living will is to address health care concerns that might arise should you ever become incapable of mak- ing those decisions.  For instance, a living will typically could state that you do not wish to be kept alive on life support systems if you fall into a coma that appears to medical experts to be irreversible.  It enables you to make decisions about medical treatment in advance of a debilitating illness or injury.

Key point:  A living will removes a huge emotional burden from other family members.  Instead of having to agonize over what level of treatment you would have preferred, the guidelines are spelled out for them.

This newsletter/advertisement is produced for our clients, friends and associates through an arrangement with WPI Communications, Inc. for the representatives’ use. Although the editorial content is professionally researched, written and edited, neither our firm nor any of its agents, representatives or associates make any representations regarding the accuracy of the content or its applicability to your situation. The information in this communication is not intended as tax or legal advice. In accordance with IRS Circular 230, the information provided herein may not be relied on for purposes of avoiding any federal tax penalties. Any tax advice contained in the body of this material was not intended or written to be used, and cannot be used, by the recipient for the purpose of 1) avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions, or 2) promoting, marketing or recommending to another party any transaction or matter addressed herein. You are encouraged to seek tax or legal advice from an independent advisor.


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