The Listen to Lawrence Letter: Special Needs Planning Strategies

February 1, 2022
Dear Clients and Friends:
There are many issues that come up when you have a child with special needs. Here is one such question from one of my readers:
Hi, I would like to ask LAWRENCE what is the best way to financially plan for my adult with special needs? Is it an investment with special needs trust (SNT) named as owner, an able account, or life insurance? What are the tax implications?
First, I want to make perfectly clear that every situation is different so there is no one fixed set of advice that I can give everyone here.  A lot depends upon the needs of your child. Will your child be adequately cared for by government benefits? Do you have faith that these government benefits will be there in the future? How much money do you have to leave for your child?
Assuming you wish to leave assets to your child, the typical way that is done is by creating a 3rd party Special Needs Trust now or in your will or living trust to come into existence later. As you all know, the money in the SNT will be held for the benefit of your child while preserving your child’s needs-based government benefits, like SSI and Medicaid. Do you have enough money in your estate to fund the trust adequately? If not, are you insurable? If so, you can purchase a life insurance policy on your life naming the SNT as beneficiary.
The Able account is another tool in our tool shed, but it has restrictions like you can only put $16,000 per year into the trust. Also, Medicaid gets reimbursed at your child’s death if any money remains in the trust at this time. With a 3rd party SNT, there are no limits on how much you can fund the trust and Medicaid has no right to reimbursement. However, if you only want to fund the trust with $16,000 or less, the ABLE account may be more suitable.
So what am I really saying here? The answer is IT DEPENDS. I will see you in the office soon.
I hope this helps! Please forward this information to your friends and relatives to share these informative answers to some very commonly asked questions.
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As always, please send me your questions. If you are thinking about it, others are probably too, so my answers will no doubt help you and many others.
Let’s stay connected.
Stay safe!
Until next time…
peace, health and happiness
Lawrence Eric Davidow