In today’s video, the discussion revolves around planning for individuals with special needs. Matt and Ben explore key considerations when a client has a child with special needs. They emphasize the importance of proper care and financial setup to maximize governmental benefits and ensure the child’s well-being.
First, they discuss the scenario of two spouses and three children, with one child having special needs. They highlight the need for insurance planning to provide resources for the surviving spouse to protect the children in case of one spouse’s passing.
Next, they delve into the distribution of assets upon both spouses passing. They recommend setting up revocable trusts for child one and child two, with rules to protect the assets. For the special needs child, a supplemental trust or special needs trust is essential to safeguard Medicaid and Social Security benefits, which would be at risk if the child’s balance exceeds $2,000.
Considerations for asset distribution are also discussed. They suggest funding the special needs trust adequately before distributing assets equally among the children. Insurance planning, such as term life insurance or second-to-die policies, can help ensure financial security for the special needs child.
The video stresses the importance of protecting the surviving spouse and ensuring the child with special needs receives the necessary care and resources. Finding reputable providers and securing resources for the child’s lifelong care is crucial in special needs planning.
In conclusion, the video emphasizes the need to identify trusted decision-makers for financial and caregiving responsibilities, involve key players in the process, and promptly implement the necessary legal documents to safeguard the well-being of all children, especially the one with special needs.
Today’s video, we wanted to talk to you about how to plan for individuals with special needs. So, Matt, what are some things that we should be looking at or things to consider?
Yeah, great question, Ben. So when a client has a child with special needs, there’s several factors that really should be taken into consideration to make sure that child receives the proper care and the proper setup to not only maximize governmental benefits, to also make sure that the proper funds are set up for that person’s care. So just as an example, let’s say there’s spouse one and spouse two, and then let’s say that there are three children. So child one, child two and child three is the one with special needs. So with no planning in place, we really don’t have anything to worry about if spouse one passes or if reverse of spouse two passes, because usually the surviving spouse will still be there.
They’ll be there to receive the assets and make sure that the care of the three kids are in place. So step one for special needs trust planning, and just planning in general, is making sure the right amount of insurances are in place so one spouse would have the resources to make sure that the children are protected. If, however, God forbid, both spouses pass and assets are passed on to all three kids, let’s just say there’s $3 million. So child one receives a million dollars, child two receives a million, and child three, special needs receives 1 million. The first ramification is if this is just done outright, child one, child two, and child three, regardless of special needs or not.
Are those kids set up to receive the money outright, or should there be a trust in place until they’re of a certain age and responsible to receive the money. So typically, we would recommend, no matter what, to have a revocable trust in place for the parents that then has some rules and regulations to properly protect the kids from creditors, from predators, and then also from themselves, depending on their age and maturity level at the time. So ideally, what this would look like upon the passing. Upon passing, a revocable trust would be set up for child one and child two. And that revocable trust sometimes would go to an irrevocable trust.
Upon passing, that may say 30, 40, 50, they’re able to receive principal, but in the meantime, for health, for education, things of that nature, they are able to take principal out with a designated trustee overseeing that. A different kind of trust should be set up for the special needs child. And this is what we refer to as a supplemental trust or a special needs trust. The importance of this, there will also be a trustee. Attached here is that if the money is not in a special needs trust and the child has a balance of over $2,000 in their name, in the state of Pennsylvania, for example, Ohio is very similar. Limit Medicaid and Social Security SSI benefits will disappear.
However, if the money is in the special needs trust, that money is not seen in the child’s name and Medicaid and Social Security benefits will stay in place. So just for maximizing the amount of money that’s available from the government, it’s very important that the trust that’s set up, that receives the money for the special needs child is in a supplemental, also known as a special needs trust. So, some considerations in this example, again, we use $3 million, is, should it be equal, should each child receive a million dollars, or should we first make sure that the Special needs trust is in place and properly funded? So, for example, maybe 2 million needs to go here and half a million. Half a million. And then these two children, if they outlive that money, goes here.
So that’s one consideration if you want an equivalent distribution upon passing, then typically we see some insurance planning should be put into place to make sure that this is in place. Let’s just say, for example, that $10,000 a month is what is needed for the special needs child. Then directionally, we’d want to have about a $3 million trust in place, and then we’D need to decide separately. So the easiest way to achieve that for two working spouses is to buy a term life insurance policy that lasts 20 years or 30 years that would pay upon passing. And then hopefully after 20 or 30 years is up and that policy expires, that there’d be enough assets built up at that point to protect the special needs child.
Or you could do a second to die policy, because, again, if one spouse passes, you want to make sure that the other spouse is protected, or vice versa. But ultimately, the biggest risk when it comes to special needs trust is making sure that the surviving spouse is protected. But then the biggest risk is if both spouse passes, no one’s going to care as much as you do about your child, especially a child with special needs. That requires extra time and attention. So having the right funds and mechanisms in place to make sure that child is protected for the rest of their life is very key. With the great resignation, it’s very tough to find a reputable provider, especially in the special needs world.
So having the ability to pay extra to find the quality of care and to make sure that the resources are available are a strong recommendation when special needs planning. Any questions on this? We welcome and we look forward to walking you through this specifically. But to close, some very important considerations are who would you trust to make the financial decisions for all three of your children, especially for your special needs child? Who would be giving the physical care to your child? Who do you want as the guardian having these decisions before you go see an attorney? To set this up will not only save your time and precious resources, because most attorneys work on a billable hour, but these decisions, we found sometimes there’s disagreement between spouses. They’re very sensitive conversations.
So I would start by doing analysis to make sure you have the right insurance in place. Secondly, making sure, who are the trusted contacts involved in this process, if you’re not here, who are the key players that you want involved to protect your children? And then third thing is implement the documents as quickly as possible. There’s not a high likelihood of something happening, but if something happens, this can really save the integrity and protection of the care that all three children receive. But especially with the focus today on the special needs child.