Special Needs Trusts and Your Planning

Government programs are needed for many disabled people, but government funding typically is not available for such items as over-the-counter medications, transportation costs to visit family members, reading material and even toiletries. Parents generally take care of these items while they are alive, but worry about what will happen thereafter. 
Estate planners often suggest such parents establish a “special needs” trust that will benefit a son or daughter but safeguard qualification for government assistance.  The trust typically would allow the trustee discretion to provide nonessential services and items to the child, such as piano lessons or recreational equipment.  These trusts must be carefully drafted to comply with state law.

Funding for a special needs trust can be accomplished through investments or, commonly, life insurance – especially a cost-effective second-to-die policy that pays out at the death of the last parent to die.  The IRS has approved charitable remainder trusts that provide ongoing funding for a special needs trust established for a family member.  Assets in the special needs trust could pass at the beneficiary’s death either to charitable or family beneficiaries.  Proceeds from the charitable remainder trust would be paid, of course, to a qualified organization.       

Note: Be sure to consult with experienced legal counsel to ensure that any trust you establish will not eliminate or postpone availability of government benefits to a child or other family member.



Strategies for Donors Who Wish to Postpone Bequests to Charities

Married couples and others sometimes prefer that all charitable bequests be made from the estate of the surviving spouse or other beneficiary, to better protect his or her financial security.  Such understandings may be frustrated, however, if the survivor forgets to follow through or develops charitable interests different from those of the first spouse to die.  Here are some strategies to ensure that all parties benefit:

  • A trust in your will that pays all income to an individual, with trust assets eventually passing to one or more organizations;
  • If estate taxes are a concern, this “testamentary” trust could be drafted as a so-called QTIP trust that pays all income to a surviving spouse and qualifies for the 100% estate tax marital deduction;
  • If your beneficiary is not a spouse, a charitable remainder trust in your will can generate a significant estate tax charitable deduction;
  • A charitable gift annuity can be established in a will that benefits both a survivor and your favorite organization;
  • You can set up “life income” gifts right now, such as a charitable gift annuity or charitable remainder trust, enjoy current income tax savings and ensure survivorship benefits for a spouse or other person.


Review Your Estate Plan Before Year’s End

Tax changes, backwash from “the great recession” and changes in your personal situation make late 2013 a good time to review, and possibly revise, your will and other estate plans.  Here are factors that may affect you:

  • Estate shrinkage?  Now that the exemption is $5.25 million (indexed for inflation) most Americans don’t have to worry about federal estate taxes.  But that doesn’t mean your estate can’t be depleted by a variety of other expenses, such as probate costs, state inheritance taxes in some areas, and federal income taxes on such assets as retirement accounts and U.S. savings bonds.  Planning now can minimize “the high cost of dying.”
  • The economy.  Changes in real estate and portfolio values may have shortchanged – or provided a windfall – for some of your beneficiaries.  Rather than distribute specific assets, such as an IRA to one child and a life insurance policy to another, consider an estate plan that leaves heirs a fraction or percentage of all your assets, so everyone would be equally affected by the ups and downs of real estate, collectibles and the stock market. 
  • Personal situations.  You may need to revise your will or living trust for a variety of personal reasons, including marriage, divorce, death of a spouse, birth of a child or grandchild, acquisition of new assets by gift or inheritance, giving away or selling assets mentioned in your will, death of a beneficiary named in your will, changes in the needs of your beneficiaries, inability of an executor or trustee to serve, relocation to a different state, or purchase or sale of real estate.
  • Your legacy to future generations. It might be that you now wish to add or augment charitable bequests to the organizations that have been important in your life. 


Planning for Those Who Live Alone

According to one estimate, 25% of the population of North America lives alone, out of choice or necessity.   Women form the majority of this group, since they have longer life expectancies than men, but many men also live by themselves. 

People who live alone have special planning needs, relating primarily to the challenges of aging, end-of-life care and estate planning.  Special attention may have to be paid to providing for assisted living, nursing home care and medical expenses.  Here are some strategies that singles and survivors should implement to ensure their future security:

  • Improve your financial “IQ.”  Ask a librarian about books on personal finance and investing.  Take a class or attend seminars that will educate you on annuities, retirement accounts, life insurance and long-term care insurance.
  • Seek out a trusted adviser.  If you do not have a will, start by contacting an estate planning attorney.  You may also need the help of a financial planner or tax adviser.
  • Plan for someone to handle financial matters if you become disabled.  A general durable power of attorney enables a person you trust to take over the job of paying your bills, monitoring your savings and investments and making financial decisions.  Another option is a revocable living trust in which a trustee would provide these services if you become incapacitated.  Your trustee may also need a power of attorney to deal with assets that are not in the trust.
  • Plan ahead for the time when you may no longer be able to live independently.  Make some “field trips” to local assisted living facilities and continuing care retirement communities.  Ask home health care providers about services that may enable you to stay in your home even if you require help with daily activities.
  • Get your will and other estate plans in order now, while you are still mentally sharp.  Older people sometimes come under pressure from family members to make unwarranted estate distributions.  Having your estate plans already in place may protect against any “undue influence.”


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The materials contained on this website are intended only to show some ways by which you can make a charitable gift or bequest and thereby minimize federal tax liabilities, as authorized by the Internal Revenue Code. All examples are of a general nature only and should not be applied to your specific situation without first consulting your attorney or other advisers.