"When you have a child with special needs, you have to educate yourself on a host of topics other parents never encounter. It's unfair - but they don't get to hang out with your awesome kid, so it all evens out. At any rate, you need to learn about your rights, what you can and can't get for your child, any new therapies that might help your child, and lots more. Be willing to learn, ask questions, and keep asking until you understand." Abbi Perets, Mom to an awesome kid.
Included in the list of 'lots more' is financial planning. Someday your child with special needs will be an adult and someday, as difficult as it is to consider, you will not be the primary care taker. It is important to learn while your child is still a child how you can preserve your assets for the benefit of your child's financial future without unintentionally disqualifying your adult with special needs from government benefits they would otherwise receive.
A good place to start is with the terminology you will encounter in conversations and research:
A Trust is a property interest whereby property is held by an individual or entity (such as a financial institution) which is called the Trustee.
A Trustee has legal right to use the property for the benefit of another called the beneficiary.
The Trust is created by a Grantor (sometime referred to as a settler) who provides the assets (called principal or corpus).
The Grantor must be the owner of the assets that is to be transferred into the Trust.
A Trust must have a Trustee. The Trustee holds legal title to the assets that must be used for the beneficiary. The Trustee can be the financial institution or a person name by the Grantor.
The Beneficiary benefits from the trust but does not hold legal title to the assets of the Trust.
The Trust Principal is the assets placed in the Trust by the Grantor.
The Trust will earn Trust Earnings (or income). These are funds earned by the Trust Principal such as interest, dividends, or other financial sources.
To offer a simple example: You, Mom, Dad, Grandma (Grantor) have some money (Trust Principal) that you want your financial management (Trust) banker (Trustee) to hold onto and use to take care of your child (Beneficiary) after you can no longer do so effectively. Over time the money (Principal) that has been invested in the Trust will increase (Trust Earnings).
In Pennsylvania there are only three types of trusts that will prevent your child from losing government benefits: 1) The Remainder Trust, 2) The Special Needs Payback Trust and 3) The Special Needs Pooled Trust.
The Remainder Trust
This trust is also referred to as a Third Party Trust. This trust is established with the assets of a third party for the benefit of the primary beneficiary during their life time. A residual beneficiary is named in the trust. At the time of death of the primary beneficiary, the remaining assets are passed to the residual beneficiary. For example a relative of the special needs individual can establish this trust with his/her assets and name both the primary and residual beneficiary.
This trust when created properly by a lawyer will not affect the government benefits of the Special Need Individual. This is a Discretionary Trust in which the trustee has full discretion as to the time, purpose and amount of all distributions.
The Federal Omnibus Budget Reconciliation Act of 1993
This law permitted the establishment of the following two trusts for Special Needs (Disabled) Individuals that allow assets in these trust to be excluded from their financial resources for purposes of maintaining or apply for government benefits. These trusts are defined in 42 U.S.C. § 1382c (a) (3) in Title XVI of the Social Security Act. The requirements of each State mirror the OBRA Act and the Social Security Act.
The Special Needs Payback Trust
This trust is also referred to as the Special Needs Trust, Special Needs Supplemental Trust or the Special Needs Medicaid Payback Trust.
There is a State reimbursement provision in this trust that states that upon the termination of the trust, or the death of the beneficiary, the State Medicaid agency will be reimbursed for medical assistance paid on behalf of the individual. The reimbursement provision varies from State to State. At the time of establishing this trust, this provision should be fully understood.
Here are the requirements to establish this trust:
• The Trust is established for the benefit of a disabled individual.
• The Grantor can be the disabled individual, his/her parents, grandparents, a legal guardian. The trust can also be established by a court order.
• The Beneficiary must be less than 65 years of age.
• The Trust Principal to establish the trust must be assets of the Beneficiary.
• Funds distributed from the trust must have a reasonable relationship to the needs of the Beneficiary and not covered by government benefits.
• A lawyer is required to create the trust documents that conform to the requirements of Federal and State law. A trustee is named and a bank is identified as the depositary of the trust.
The Special Needs Pooled Trust
This trust is also referred to as the Master Trust, or Pay to Trust or just The Pooled Trust.
Here are the requirements to establish this trust:
• The Trust is established for the benefit of a disabled individual by a non-profit organization.
• The Grantor can be the disabled individual, his/her parents, grandparents, a legal guardian. The Trust can also be established by a court order.
• The Trust Principal to establish the trust must be assets of the Beneficiary.
• Fund distributed from the Trust must have a reasonable relationship to the needs of the Beneficiary and not covered by government benefits.
There are Significant Differences between the Pooled Trust and Payback Trust. The following is list of these differences:
• The Pooled Trust is managed by a non-profit organization.
• The Trustee is the senior executive of the non-profit organization. There is no need to identify Successor Trustees (that is when an existing Trustee wishes to resign or because of death).
• Since the Pooled Trust already exists, Grantor needs only to complete a Grantor Agreement. Therefore no lawyer is required and existing bank is the custodian of the Pooled Trust funds.
• There is no age limit requirement for the Beneficiary to start a Pooled Trust.
• A separate account is maintained for each Beneficiary in the Pooled Trust.
• A common fund is allowed for investment and management of the Pooled Trust.
• At the time of death of the Beneficiary, the balance in his/her account remains with the Trustee for other individuals in that Pooled Trust.
The Special Needs Payback Trust and the Special Needs Pooled Trust are both a Discretionary Trust and a Supplemental Needs Trust.
Supplemental Needs Trust is a trust that limits the trustee's discretion for distributions only for supplemental expenses but not to supplant sources of income including SSI or other government benefits.
Distribution can only be for the benefit of the Beneficiary.
Discretionary Trust is a trust which the trustee has full discretion as to the time, purpose and amount of all distributions.
The above information focuses only on those trusts that accomplish the objective of preserving assets for the special needs individual while maintaining his/her benefits. There are other trusts but in most cases they cannot accomplish what the above three trusts can and many of them cannot meet the requirements of OBRA Act and the Social Security Act. A close comparison should be made prior to selecting the trust best suited for your loved one.
About Elizabeth C. Cook
Elizabeth Collins Cook MT-BC, founder of Gathering Drum, is an accomplished classical concert, recital and opera singer. In addition to being a graduate of the internationally acclaimed Academy of Vocal Arts (avaopera.org) and being named Singer of the Year by the National Association of Teachers of Singing, she has won numerous concert and recital competitions, spent 12 years performing major operatic roles and been seen and heard on radio and TV broadcasts. Solo concert credits include major national stages including Carnegie Hall. She holds a Masters Degree in both Music Performance and Music Therapy.
Elizabeth understood early the therapeutic benefits of music making. Growing up in a musical family, she saw that sing-alongs around the family piano and guitar strengthened the family bond and provided a space for storytelling and self-expression. As a teenager she found the piano to be an emotional refuge and a place to release stress. As a student of voice she found that the intense breath work of formal classical singing positively shifted her mood and relieved anxiety. After years of diligent vocal study she found that operatic stage expressions of larger than life emotions provided a much needed place for a powerful and cathartic release of unrecognized emotional tensions.
In 1998 Elizabeth stepped off the operatic stage to build a family. She continued to perform for her children and with the Philadelphia Singers. She also continued teaching private voice and piano.
In 2005 she was asked to teach piano to a child with Autism. Uncertain that she could be of any service she took on the challenge. Elizabeth learned a lot from this experience. She was very impressed by the positive influence music participation played in this little boy's life. Teachers at his school found out about his talent and invited him to play for the choir. Social opportunities opened up for him and his self-esteem soared. Elizabeth thus became curious about the connection between Autism and music. Following some independent study, she decided to pursue a Master's Degree in Music Therapy. Two years later she completed the degree and passed the board certification exam and achieved a license in Early Childhood Music Development through Music Together®.
She now specializes in providing music therapy for individuals with Autism and is dedicated to improving the quality of life for clients and for those who love and care for them.
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