15 June 2009

Special Needs Trust

Although Gary and I finalized this before I started blogging, I thought it might be of interest to some if I shared our experience setting up a Special Needs Trust...

Gary and I established the Lindsey Revocable Living Trust, a special needs trust, to take care of Sheridan after we're gone. Ugh... hate to think about that kind of stuff, but it's soooo necessary.

Before I go any further, it's my obligation to tell you what you likely already know: I'm not an attorney, I'm not an estate planner, I'm not a banker, and I have no expertise in any of the professional arenas involved with estate planning. In fact, I do my best to explain what I have to share, but it's only based on my own understanding (an attorney might argue that I don't totally explain something here correctly). What I'm offering is simply our experience and the issues we felt were important for consideration for our family. I just hope that our experience might help others to start thinking about these issues if they haven't already. Ok. Enough with the "Lisa only barely knows what she's talking about" stuff...

Gary and I had *finally* talked about putting together a will when I was pregnant with Sheridan. After Sheridan was born and diagnosed with Ds, we realized that a will was no longer good enough.

I'll admit, one of my biggest fears (that I still hold today) is what happens to Sheridan after we're gone. Having a child with special needs means needing to plan far into the future... often farther into the future than we can even try to imagine. Bottom line: we needed to make sure Sheridan has what he needs to live independently, semi-independently, or whatever his living arrangements will need to be, and that his health, social life, and overall well-being would be taken care of (to the best or our abilities).

We needed to establish a special needs trust - which, in our case, is a revocable living trust that has a special needs provision. In a nutshell, Sheridan is a beneficiary of the trust (which includes all of our assets - like property, life insurance, etc.) and it does not jeopardize his ability to qualify for public services like MediCal (which is California's name for Medicaid - why do we always have to be so darn original?), Social Security, etc. So, the money in the trust (like from our life insurance) can be used to pay for his housing, any medical needs beyond those he is eligible for through MediCal, transportation, etc. Just as important, that money does not count as income (this is really important, because if any money, our home, our life insurance, etc. were left to Sheridan in his name, it would all count as income/assets for him and he would be disqualified from public services because he would "make/have too much money").

And let me be clear, when I'm talking about estate planning, you might be thinking, "We don't have an 'estate' - we don't have much at all." Well, welcome to the club. We have a negative net worth (not something that's pretty to see in writing from a financial planner, let me tell you). So, technically it looks like - right now, anyway - all we have to give is a big fat zero. But it doesn't matter. One day our life insurance will kick in, one day in the very far-off future we'll (hopefully) pay off our home, or one day our parents (Sheridan's grandparents) might want to leave him some money when they die (more on this specific issue later).

My point: you don't have to actually have a lot of money or property to set up a trust.

Okay, so what were the most important things we needed to think about when creating the trust? Here's a Top Ten list of some of the bigger ticket items (in no particular order)...
  1. We wanted the trust to be revocable, because it means that we can change it, or cancel it, at any time (we will undoubtedly need to change it many times in the future as our situation, our family, and Sheridan's needs change).
  2. How were we going to "fund" the Trust? Well, honestly, right now it's not worth much at all (remember our negative net worth???). But we transferred the title of our home into the name of the Trust (so once it is paid off that becomes an asset). We changed our bank accounts to be in the Trust's name (keep in mind that both Gary and I are "trustees" which means everything operates the same way as before - but if something happens to us, any money in our bank account will go to the Trust, not to Sheridan directly). We each named the Trust as the contingent beneficiary on our life insurance (so my life insurance goes to Gary first, but if he's not around it goes to the Trust). Those are just some examples of how we common folk (a.k.a. not rich people) fund it.
  3. We had to think about guardians and contingent guardians for Sheridan. This was a big decision, not just because we were trusting our child to somebody, but because it is a very big responsibility for said guardians. And, you have to think about all kinds of possibilities. For example, if your selected guardians are a married couple you have to think about the possibilities of divorce, or one of them passing away. If they get divorced, which one of them would you like to be the guardian? Or would you bypass them for the contingent guardians? Basically, you have to set priorities for all possible situations and lay out precisely how you would want the guardianship to happen. In the end, we chose FIVE different guardianship scenarios (the primary guardianship and then four back-up scenarios that run through various possibilities with the primary couple and the contingent couple). You don't have to be that specific, but it helped us have piece of mind that Sheridan's guardianship would (most likley) happen in a way we wanted.
  4. We had to think about whether or not we wanted some of the Trust's money to help the guardians. For example, what if the guardians' house is too small and they need to buy a another house to help them take in Sheridan? Or what if their existing house was ok, but they need to do some remodeling to accommodate his needs? Did we want the guardians to have access to money in the Trust to help them do that? And if so, what contingencies did we want to place on those funds (e.g., if they purchase a new home, and money from the Trust is used for 20% of the purchase price, the Trust owns 20% of the new home - so when the house is sold, 20% of that money then goes back to fund the Trust).
  5. Who do we want to oversee the Trust? You can appoint guardians, executors of the Trust, etc. and they can all be different people. Or they can be the same people. To the best of my understanding, the executor oversees the Trust (including how payments are dispersed, how funds can be used by Sheridan and the guardians - including the housing issues I noted above, investing the money to help keep the fund going, etc.). If the guardian and executor are the same person(s), you are appointing them to oversee themselves. You better really trust them. Which, in our case, we do. Why else would we trust them to care of Sheridan? But many disagree with our decision and prefer having more "external" oversight.
  6. How much compensation did we want to provide the executor? Our attorney told us that being in charge of a trust is a big job, and nobody would do it without compensation. So, do you want the executor to receive 3/4 of a percent of the Trust for their efforts? What about 1/2 a percent? Or a fixed amount each year? No matter what, you have to decide if you want to provide compensation, and if so, how much.
  7. What about other children? Right now, Sheridan is our only child. So, we left standard language in that would split the Trust equally among all our children. Obviously, this means if we have one other child and we do not change the Trust, Sheridan gets 50%, and child #2 gets 50%. However, once we have other children, and once we have a better understanding of Sheridan's needs (this is a prime example of the type of changes you might need to make and a revocable trust comes in handy)... we might determine that Sheridan really needs more than "his share" of the money. So, we might go back and say Sheridan gets 60%, and children #2 and #3 get 20% each. The point is: you have to determine exactly how you want this to happen (and make sure you understand the laws in your state so that you know what will happen to the funds if you don't specify anything).
  8. Do you want to include a Letter of Intent? We all know the ins and outs of our children. We all have special things that we do with our kiddos, and might have specfic requests for our child with special needs. Or, maybe your child's daily schedule is really precise and very important to every day functioning. Or maybe your child has special nutritional needs. Or takes special medications, vitamins, etc. Or maybe s/he has allergies. Or maybe s/he has a special stuffed animal that MUST stay by his/her side at all times. Or maybe... you get the picture. When you think about it, if you (and your child's other caregivers) were to disappear tomorrow, how would anyone know exactly how to care for your child every single day? Even the mundane details matter to our children, and a letter of intent helps everyone understand what your wishes are for your child. Key word: wishes. It's important to understand that a letter of intent is NOT legally binding. It just provides guidance that you think the new guardians will find useful - or things you really hope they will do (e.g., feed your child only organic food). The letter of intent is NOT part of the Trust, it's a separate document that can be kept on file with the Trust (e.g., in your attorney's office and with your copy at home or in a safe deposit box). The letter of intent will need to be udated regularly as schedules, needs, etc. change... but is an option for those parents who feel the guardians will need some specific guidance.
  9. What about all the other "stuff" that you've accumulated? You have to decide what to do with it... typically a good old-fashioned will is included in the Trust. It's for everything else that's not valuable enough to "fund" the trust. For example, what will happen to your books, furniture, cars, jewelry (assuming you don't have any Hope diamonds lingering around the house), art, etc.? You can simply roll it all into your Trust (meaning any beneficiaries will determine how to divvy it up), or you can specify who gets what.
  10. What if grandparents (or others) want to leave your child money? We learned that anything (with monetary value) people want to leave to your child with special needs should be left to you. If they leave it to the child, it goes in their name. Which means it becomes their property or money. Which means it counts as income. Which means a very thoughtful gift just disqualified your child from social services like MediCal and Social Security. Instead, everything should be left in your name (assuming you are still alive - I know it sucks to talk like this, but we've got to be thinking about it) - if it's in your name it becomes part of the Trust and when you die... walaah. The property/money now goes to the child as part of the Trust without it counting as income. Our attorney also explained that if anybody makes a gift to the Trust itself (before you and the other trustee die), then the special needs portion of the Trust automatically kicks in (so now you have to oversee the Trust, yadda yadda, instead of going about your business like you do now). Now, I have to admit, I don't think we got a great explanation as to why this was bad, all I understood is that we want to avoid it. Things in your name become part of the Trust (remember, you either outline specifically how it will be funded - so you could add this gift, or everything else just rolls into it based on your will - so any random savings account from your college years that still has the minimum $25 balance will roll in, and so will this gift).
  11. What if you are all gone? Okay... even harder to think about, I know. And I said this would be a Top Ten list, but it goes to eleven (just for all you Spinal Tap fans out there)... So, what if you and your children are gone? What happens to the Trust then? Well, that partly depends on what state you are in, or what you lay out in the Trust. In California, if you don't specify anything, it automatically goes to next of kin in equal shares (first to our parents, then our siblings, then our siblings' children, etc.). Now, if the thought of a specific family member suddenly inhereting your life isnurance makes your skin crawl, you can outline precisely what you want (for example, X% goes to Charity A, Y% goes to cousin Melba, Z% goes to neighbor's child Esperanza - you get my point here). But, keep in mind that if all those people are gone by the time the Trust is ready to be divvied up, it then goes to their next of kin and so on). So, something to think about.
We had to think about a lot more than this, but these were the biggies. It took us six months to finalize it... not because it was a long legal process (truth be told, it's pretty clear that attorneys just use a template and you plug in or change anything you want - which saves you some money), but because it was hard to make some of the above decisions.


  1. THANK YOU THANK YOU THANK YOU THANK YOU for this post. We've not done ANYTHING yet and this helps SOOO much. All I knew about was that I should not put anything in Joaquin's name and this just explains it all so well. Do you have an attorney that you recommend? Was it costly to get done? My dad is an attorney but doesn't specialize in this but could probably help us out if we already know what we want to do. I'll have to chat with you more about this sometime soon!
    Thanks again for posting this incredible info,

  2. wow Lisa! I hadn't put much thought into this either so THANK YOU!

  3. Lisa, thanks for taking the time to post on such an important topic. We have a trust in place for our children, but will need to adjust it for special needs. Yes, it's a lot of work, but so necessary. It gets hard to think about executors and guardians for your children in the event that both parents/grandparents are gone. But I don't want to think about what would happen if we didn't plan!

  4. I think this is fabulous info. I don't mind talking about this kind of thing one bit and think it's great if we can share this type of information when it's needed. (I'd like to link to it if you don't mind and maybe ds.mama would be interested too?)

    We, too, have done nothing but *think* about a Special Needs Trust.

    How do you keep people from leaving money to your child directly? Was there any guidance given to you on that? I mean, is that mass email material or did you go, one by one, to everyone you could ever think would consider naming Sheridan as a beneficiary for anything?

  5. To Chrystal: As of right now, we figured the only people who might give/leave something for Sheridan are his grandparents. So we just had a conversation about it with each of them separately. It does feel a little awkward, almost like saying, "Hey, y'all better fork something over for him" - but none of them took it that way at all. They completely understood, and were actually really grateful for the information (the last thing they want is to compromise Sheridan's access to needed services). The other thing we plan to do is send an email (I know, mass email sounds a bit tacky, but can't think of another way to do it without sending the "fork something over message") to our other relatives who might want to leave something to him (our aunts, uncles, cousins). In a nutshell, we just plan to tell them: hey, we just set up a special needs trust for Sheridan and the attorney told us that in order to protect Sheridan's important services like MediCal and Social Security when he is older, people need to give things (no matter how big or small) to us - so, if you want to leave a family heirloom (like grandma's afghan), or that cool million you're stashing for a rainy day, to Sheridan, be sure to leave it to me or Gary so it doesn't jeapordize his services. The trust will make sure he gets anything you leave him.

    I think our family will understand... I hope! :)

  6. To Jen: The attorney charged us by the hour, plus the county fees for transferring the title of our house. We met with him more times (maybe an extra 2 hours or so) than we needed to - only because we kept going back and forth on a couple of issues (so each time we weren't ready to sign on the dotted line). I think it cost us about $1,200 (attorneys make a lot per hour), but if you think about these issues ahead of time, you'll be able to tell her/him exactly what you want at your first meeting, then the next meeting is just reviewing the documents (identifying any small things that need changing on the spot) and signing. I would strongly recommend an attorney who specializes in this kind of law. We used a great guy (recommended by my mother-in-law, he helped her with her parent's trust that had been mis-handled by siblings). My dad and step-mom used somebody that they highly recommend, too (their attorney also did my step-mom's parents' trust) - but he was out in Roseville and the other guy was in Greenhaven :) I'm happy to provide the info to you if you want!

  7. Great information Lisa! We set up a special needs trust too last year and I feel better about having that in place.

  8. Hi Lisa, I have a blog award for you :-)

  9. Awesome post. Our little guy is 15 months old now and while we know we need to start thinking about setting up a Special Needs Trust, we have just not gotten around to it yet. Looks like the process is pretty long and I now have more incentive to get my butt in gear. Thanks!