How much money should you set aside for a special needs trust?
When I meet with clients to create a special needs based estate plan, this is always one of the biggest questions. Should they put more money into a special needs trust for a child when their other children are more self-sufficient? Should they put in less if they're not sure how much they're going to need because they also receive government benefits? There's no blanket answer to these questions that applies to everyone.
Two Ways to Think About It
Working with clients, I've encountered two schools of thought in the way parents approach funding their special needs trust:
- Minimalist ~ you only put in the bare minimum of what your child will need.
Now, it may not seem like the best way or most heartfelt way to approach this. However, if your child is receiving government benefits, they may not need a lot beyond what they're getting from the benefits. And the whole point of the special needs trust is to protect those benefits. So as long as those benefits are in place, the minimalist school of thought may be the way you want to go.
- Safety net ~ give the child as much as possible.
You're putting as much money into the special needs trust as you can, just in case, and you can make a provision in there that if that child dies before you, the money in the trust can then go to their other siblings. The whole point is we want to look at the benefits that your child is receiving. If we look at what their monthly costs are, what the benefits are, and you can usually anticipate going forward that they'll stay the same. You can get a better idea of how much you should be funding into your special needs trust.
How to Fund It
Many clients also ask: Where am I going to find this money? You may not have a ton of money saved up, so one asset to look at is a life insurance policy. Some of my clients will actually take out a life insurance policy that will be used to fund the special needs trust in case that is needed. No matter what you choose to do with this issue, there are a few people you need to consult. Most importantly your accountant and your financial advisor. They know your financial position. They can give you a good idea of how much you can realistically use to fund a special needs trust, and they will probably put you in touch with an insurance broker if you don't already have one. And they can look at life insurance options for you to make sure that there is an ample amount of money to fund the trust.
If you are trying to figure out how much to put into your special needs trust, work with the professionals. Talk to your accountant, your financial advisor, work with an insurance broker to make sure that your special needs trust is properly funded. And if you don't have a special needs trust set up, you've got a child with special needs and you know you need one, let's set up a Legal Strategy Session to discuss the best options for you and to make sure that if you need a special needs trust, we get the right one put in place for you
