Special needs trusts are considered the most effective way to gain tax breaks and ensure the best level of protection for your loved one, and they are covered in more detail in previous blogs. But these trusts cost time and money, and the trustee may be placed in difficult situations. Not every situation is the same, and sometimes it is best to pursue an alternative course to help your loved one.
Leaving Assets to Someone Close
This is an informal approach, and not one that is typically recommended unless the assets are relatively small. In this case, you would leave assets to a friend or relative who has agreed to care for the individual with special needs after your death. However, this has some obvious pitfalls. There is no guarantee that the funds will be used in support of your loved one, as the assets would be given outright to whomever you gave them to. There is also a risk that the funds given can become the target of creditors, and then taken from the person you gave it to. Giving money outright for the care of your loved one is not highly advised, unless you have extreme trust in the individual and they are in a financial state where the funds would not be taken from them.
Leaving Assets Directly
By leaving your assets directly to the person with special needs, they will almost undoubtedly be disqualified from SSI and Medicaid. There is also the risk that the individual would not be able to manage the funds given to them, which could be detrimental. The only time this is an advised solution is when the individual would be receiving enough assets to never need SSI or Medicaid and they are of sound enough mind to manage the funds properly. However, this does have the upside of the individual being able to determine what they need, when they need it. Assuming the person is able to handle it, this is a much better option as their needs will be cared for, unlike the risk of leaving it to another person.
Joining a Pooled Trust
Almost every state has a non-profit where the funds are pooled into one large trust and invested, then distributed to the individuals within the trust. These are always professionally managed, and the trustee will be a member of the non-profit; money is then paid out to the beneficiaries without it affecting their SSI or Medicaid. Arizona has 4 such organizations, Charities Pooled Trust, Commonwealth Community Trust, National Foundation for Special Needs Integrity, and PLAN of Arizona. However, there are a few downsides to using a pooled trust:
- Can be expensive. These trusts typically have a setup fee and annual fees.
- The non-profit itself can fail
- Sometimes funds are distributed at the same time every month, this can be a problem for people who need more frequent payouts.
- Next to impossible to move funds to another trust once placed in
- Most trusts will not take real estate into the trust
These trusts are great for families with little assets or access to a full special needs trust. The management of these trusts will also ensure that your loved one is cared for after your passing, and the people running the trust are in tune with the special needs community.
These accounts were created in 2014 with the passage of the ABLE Act, and although currently not allowed in Arizona, they may be the right fit if you are in a state that uses them. These accounts allow for post-tax funds to be placed into an account for a beneficiary by any person. This also allows for the beneficiary to remain eligible for SSI and Medicaid, as they payout amounts remain under the threshold to remain eligible. For more information on these type of accounts, visit the ABLE website.
There are numerous options when planning the continued care of an individual after your passing, and as you can see there is just not a “one size fits all” plan. Sometimes, there should be a combination of strategies and other times keeping it simple is the best route; it really will depend on your unique situation. Contacting Susan Sandys to make sure that your loved one is cared for and your estate plan is done properly.