Special Needs Planning & Retirement Plan Trusts

 In Special Needs Planning

The Gift that Keeps on Giving

The Retirement Plan Special Needs Trust is one of the most effective tools that parents of special needs children have in ensuring long term financial security for a child that is not able to provide that for himself.  This uniquely tailored trust addresses two dilemmas in planning for the care and financial future of a loved one living with a disability:

  • the disabled individual lacks options for retirement planning, and

  • an inherited IRA will count against a disabled individual for purposes of benefits eligibility

Let’s take a closer look at these two issues, and how the Retirement Plan Special Needs Trust provides a solution.

For most of us, our retirement savings is something we strive to build up over our working years, and we rely on it in planning for our needs later in life.  For the individual with disabilities, employment contributions to a retirement account are not always an option; he or she will then need to rely on government benefits like Medicaid and Social Security Disability Income to provide for their primary living expenses and care, and hopefully will have other resources and family support to help supplement that basic care to achieve a healthy quality of life.

The parent of a child with special needs is keenly aware of how important government programs are, such as Medicaid, in meeting the medical needs and care requirements of an individual living with a disability; without such benefits, that very necessary care could be financially devastating.  This is why many parents caring for a child with special needs pursue Special Needs Planning, including the establishment a Special Needs Trust.  Why?  Parents are planning for their death or incapacity – who will care for their child when they are no longer able?  How can they make sure that their assets are properly handled for their child’s benefit?  How can grandparents leave assets for their special needs grandchild without disrupting benefits?  The Special Needs Trust (SNT) provides an answer to many of these questions:

  • Unlike an outright gift, or a living trust, the SNT allows parents to set aside money and most other assets for that child, without compromising eligibility for those vital government benefits when that child turns 18 years old.

  • The SNT funds are used to supplement the beneficiary’s care already received through government programs, thereby maintaining the quality of life the parents’ had provided.

  • The SNT establishes a support team, with key people who can provide valuable input about the child’s care, decisions about where to live, recreational activities, etc. This can include family, friends, and medical professionals.

Clearly, the SNT is a wonderful tool, and addresses many of the concerns mentioned.  However, the SNT also has its limitations: it cannot be funded with retirement accounts.  But what if, for example, 60% of the parents’ wealth is tied up in retirement accounts?  Children can usually benefit from an inherited IRA; but in the case of a child with special needs who will need to qualify for government aid, owning an IRA is like any other asset, and it will be a disqualifying financial resource.

What’s more, for most of us, our retirement savings is something we strive to build up over our working years, and we rely on it in planning for our needs later in life.  For the individual with disabilities, employment contributions to a retirement account are not always an option; he or she will then need to rely on government benefits like Medicaid and Social Security Disability Income to provide for their primary living expenses and care, and hopefully will have other resources and support to help supplement that basic care to achieve a healthy quality of life.

The Retirement Plan Special Needs Trust solves both of these dilemmas. 

Working in tandem with the SNT, the Retirement Plan Special Needs Trust allows the tax-free growth of the retirement account to continue, or “accumulate” while the regular SNT’s funds are tapped into as the first line of defense for the care of the disabled beneficiary. This coordinated strategy maximizes the benefits of each trust.  Once the regular trust is depleted, and it’s time to bring in the reinforcements, the Retirement Plan Special Needs Trust’s funds will have enjoyed the maximum possible tax-free growth.  The beneficiary will now have the retirement account(s) to potentially carry them through middle-age, any worsening illness, or even nursing home care.

The SNT combined with the Retirement Plan Special Needs Trust is truly the “power couple” of Special Needs Planning.  These are complex documents that require the skill and experience that Tresi Weeks offers.  Call our office today to schedule a consultation – we look forward to meeting you!

 

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