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What You Need to Know About Special Needs Trusts: From Costs to Finding Help

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Experts say special needs trusts are necessary for the welfare of the person with special needs.

“The most important reason for a special needs trust is that people with special needs often fail to make appropriate financial decisions for themselves and/or are at risk of being financially exploited by others,” said Certified Financial Planner Mike Walter, Founder Oak Wealth. Consultants in Northbrook, Illinois.

Equally important, according to Charles Italiano, assistant director of Westchester Disabled On the Move in Yonkers, New York, is to “maintain eligibility for public benefits such as [Supplemental Security Income] and Medicaid, and enable children with special needs to lead fulfilling lives.”

Why do many people with special needs need to receive government assistance?

Since the cost of treatment can be astronomical, said Michael Beloff, partner and Certified Special Needs Consultant with Belvedere Wealth Partners in Stamford, CT.

For example, day support services for a person with severe disabilities can cost more than $100,000 a year, while a group home in the Northeast can cost $140,000 to $300,000 a year, he said.

“Depending on the nature of the person’s disability, most families cannot afford to pay for these out-of-pocket services during life and after death,” he said. “That’s where Medicaid comes in.”

Because SSI and Medicaid recipients are allowed limited income and only $2,000 in liquid assets, it becomes necessary for families to shelter assets in special needs funds so that their loved ones don’t lose this life-saving public financial support.

Special needs trusts should be formed as soon as a child is diagnosed with special needs, Walter said.

Two types of trusts

There are two types of special needs trusts. According to Italiano, ideally you want both.

• Third party: “This type of trust is funded from the parents’ money solely for the needs of the child and will never be created in the child’s name,” Italiano said. “After the death of the parents, the funds go to someone other than the child.”

They are most often funded by insurance and parental assets, Beloff said, and can be set up without funds.

Once funded, the trust receives its own tax identification number and must file its own tax return. These funds are for expenses that are not covered by Medicaid or SSI, such as travel, clothes, computers, etc.

Watch out for conflicts of interest if the trustee is also the ultimate beneficiary.

Michael Beloff

Certified Special Needs Consultant Belvedere Wealth Partners

“It’s a way to ensure that the money is there and controlled by a qualified trustee, such as a family member, friend, or third party, such as a bank or nonprofit,” Beloff said. “Beware of conflicts of interest if the trustee is also the ultimate beneficiary.”

It’s important that other family members know they must make any gifts or bequests to the fund to avoid negative consequences for a special child’s eligibility for Medicaid, said Attorney Ray Falcon, head of the Falcon Law Group in Woodcliff Lake, New York. Jersey.

• First party: This trust is created using a person’s own assets to protect any income earned or inherited so as not to exceed Medicaid income and asset limits. According to Italiano, the distribution must be approved by a trustee.

“This type of trust can have a refund clause, so that any funds left over from individual passes go towards paying off the overall cost of Medicaid,” he said.

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