By Thomas Rindahl, CFP
A common concern when family members have special needs is ensuring that our loved ones will have enough assets to survive through life. But what happens when you try to help someone? It always spoils something! You know that old saying, “no good deed goes unpunished”. This is especially true when it comes to special needs planning.
Many people will qualify for government assistance. Unfortunately, if they inherit part of the change (big or small), it may inadvertently disqualify them from the government assistance they were receiving. Here are some strategies you can consider when looking to plan for your loved ones.
A trust for special needs
The special needs trust is an option. There are three basic funding methods for the trust:
1) Self-pay: Money from the person with special needs
2) Third party: someone else’s money funds the trust
3) Pooled: Funded by others and usually administered by a non-profit organization. This is a viable option for small estates or in case there is no clear choice for a trustee to administer the trust.
In all three forms, the person with special needs is the beneficiary of the trust but is not the owner of the funds, thus avoiding issues that will disqualify the person from government support. This person must be under the age of 65 when the trust is established.
Remember that you cannot use money from a special needs trust for just anything. There are rules for trust distributions. You can distribute funds to pay for medical and dental expenses not covered by other benefits, groceries, public transportation, travel, clothing, education, insurance, legal services, fees burial, vacations, cleaning services and household appliances.
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The ABLE account
The ABLE account is another option. The ABLE (Achieving a Better Life Experience) account was established in 2014 and offers a tax-free savings account that can also be used to pay for the expenses of the person with special needs, without affecting any other government support received. . Anyone can contribute to the account, but it is subject to a total maximum contribution limit of $16,000 for 2022. If the balance exceeds $100,000, government benefits may be affected until the balance is at again reduced. It also requires that the beneficiary of the account be under the age of 26 when disabled for the account to be established.
Distributions from the trust on the death of the beneficiary
What happens when the beneficiary finally dies? Any remaining funds in the self-established, pooled special needs trusts and the ABLE account will be used to repay the government (and non-profit, in the case of the pooled special needs trust). The Third-Party Special Needs Trust does not have this requirement.
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About the Author: Thomas Rindahl
Thomas Rindahl, PhD, MBA, CLU®, ChFC®, CFP®, LUTCF, BFATM, is a financial advisor in Tempe, AZ. Through comprehensive and holistic financial planning, he has been helping his clients navigate the twists and turns of life for over 20 years.
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