Quick Quote

Trying to find the best price for your client? Use our quote engines to instantly find out which carrier has the best price on a product.


Need to get contracted? Click the link below to fill out paperwork.

CUI Newsletter

Stay informed on our latest news!

Planning for Special Needs

On the portion of the questionnaire asking the Stones if they have any particular concerns regarding their financial and familial plans, the Stones indicated that they are concerned about equalizing their estate among their three children while still ensuring that they’ve taken care of their special needs child. You’ve heard of a “Special Needs Trust” before, but what does that really mean and how should the Stones’ planning be tailored to accommodate their concerns regarding their children?

Many individuals with physical, mental, and/or emotional impairments qualify for federally provided benefits through Social Security Income (SSI), Social Security Disability Insurance (SSDI) and Medicaid. While these benefits are sufficient to provide for that individual’s basic needs, they often are not sufficient to provide the additional care that individual may need. In order to fill in the gaps left by federal benefits, many people create a Special Needs Trust. The Special Needs Trust is a trust created by a third party, usually a parent, grandparent, or other relative, for the benefit of a special needs individual.


Special Needs Trusts

Special Needs Trusts have to be carefully drafted, because most of the federal benefits available to a special needs individual are reduced or eliminated if the individual has income and/or assets over a certain threshold. Therefore, the Special Needs Trust is designed to benefit the individual without giving that individual any direct access to the funds or any right to demand a distribution from the Special Needs Trust. In addition, most Special Needs Trusts are drafted to prohibit or restrict the trustee’s ability to pay for any of the individual’s “basic needs,” because such payments can also reduce or eliminate the benefits for which the special needs individual qualifies.

Even though Special Needs Trusts are usually designed to be “non-necessity” trusts, the Special Needs Trust language often gives the trustee the ability to provide for the individual’s basic needs. The caveat behind this flexibility is that the trust funds may be used to provide for the individual’s needs if doing so results in a better standard of care than would be available under federally provided benefits. Ultimately, Special Needs Trusts are drafted to provide the flexibility necessary to ensure that the individual receives the level of care that the trust’s grantor intended for the trust’s beneficiary.


Considering Other Needs

While the Special Needs Trust can effectively provide a back-stop to the special needs individual’s care, ensuring that he or she continues to receive a high level of care, it does not necessarily address the Stones’ concerns for their other children. The Stones realize that two of their children have had their childhood impacted by having a special needs sibling and they want to ensure that their two eldest children receive their share of the Stones’ wealth. The Stones know that their oldest children are happy to serve as their sibling’s guardians, but the Stones want to ensure that such guardianship won’t impact their children’s financial future.


The Solution

Given your research into Special Needs Trusts, and your understanding of the Stones’ concerns for their children, you recommend that the Stones create a Special Needs Trust for their youngest child, naming their two eldest children as guardians and trustees for their sibling. Because Elizabeth Stone stays home to care for their special needs child, they will need supplemental income at Peter Stone’s death, so you plan to recommend that the Special Needs Trust purchase a single life policy insuring Peter. The provisions of the Special Needs Trust outline the process for choosing successor guardians, should the Stones’ two eldest children be unable or unwilling to act as their sibling’s guardian. Finally, the Special Needs Trust will provide that any funds remaining in the Special Needs Trust at the death of the special needs beneficiary are to be divided equally among, and distributed outright to, the Stones’ other children.

Given that any assets a special needs individual owns or has access to will reduce the amount of federal benefits that individual can receive, the Special Needs Trust cannot be funded with annual exclusion gifts. This is because the Crummey withdrawal power, which is necessary to make the gift qualify for the annual exclusion, constitutes $13,000 of assets that the special needs individual can access, thereby being included in calculations done to qualify the individual for federal benefits.

In order to avoid disqualifying their special needs child from the federal benefits needed, the Stones should use some of their lifetime gift tax exemption amount ($1,000,000 per individual, or $2,000,000 for the couple) to make a large gift of cash to the Special Needs Trust. The Special Needs Trust’s trustee will use the gifted funds to pay the premiums on the single life policy insuring Peter. This also allows the Stones to save their annual exclusions for any estate tax planning you will recommend.


Courtesy John Hancock Life Insurance Company

Article Date: 
2011 March