Special Needs Trusts a Must For Children With Disabilities

Patrick L. Thimangu – St. Louis Business Journal

Michael Chiodini said he and his wife, Debbie, face about $20,000 a year in health-care costs for their son, Dillon, who has cerebral palsy.

Personal finance and legal experts often counsel parents to plan for the worst possible disaster: death or a crippling injury before their children are grown and able to fend for themselves.

That planning is especially crucial for the millions of parents raising a child with developmental or physical disabilities, said Gerald Zafft, an attorney at the St. Louis office of Stinson Morrison Hecker LLP. He said even people with substantial amounts of money can leave their disabled child in financial or bureaucratic difficulties if they die suddenly without proper financial and legal arrangements.

“When a baby is born and when you plan for her college, you have about 18 years to plan for a need that lasts four to five years ,” said Zafft, who has a 37-year-old son with Down syndrome. “When you are dealing with a child with a disability, you are looking at a need that starts at birth and lasts an entire lifetime. You don’t have an 18-year gap.”

More than 2.8 million American families are raising at least one child with a disability between the ages of 5 and 17, which represents 1 out of every 26 American families, according to Woonsocket R.I.-based pharmacy retailer CVS Caremark Corp.

Although the bulk of those parents rely on some form of government funding such as Supplemental Security Income (SSI) and Medicaid to help pay for the medical and living costs of those children, they still need to plan, Zafft said. SSI and Medicaid funding alone is not enough to provide for a child’s upkeep, and that government funding could be interrupted if there isn’t a proper plan in place to utilize the parent’s assets, he said

In general, children with disabilities who directly inherit more than $2,000 from a deceased parent become ineligible for SSI or Medicaid in Missouri, said Sherry Snyder, an attorney who specializes in estate planning at Doster Mickes James Ullom Benson & Guest LLC in Chesterfield. The only way for the child to regain that eligibility, she said, is to spend all the inheritance, something that can happen very quickly given the high costs of health care.

One of the best ways that parents can ensure their children will be properly cared for is to create a special needs trust. The inheritance due to a child with disabilities can be transferred to that trust without hurting the child’s eligibility for SSI and Medicaid.

John Kang, president of the board of St. Louis Arc, a local non-profit organization that supports more than 3,000 people with developmental disabilities, said children with disabilities in general are living longer today than they did 30 years ago because of advances in medicine. The purpose of a special needs trust should be to complement government programs, he said.

Kang, who is also a managing director and senior trust officer at The PrivateBank, said funds from the trust can be used to pay for things that government programs don’t cover, including certain types of medical treatments and therapies; fitness or health programs; recreational and transport expenses.

Legal fees for setting up a special needs trust cost about $1,000 to $5,000. Kang said many trust banks require minimum annual fees of $5,000 to $7,500 to manage trust accounts, which are often funded with proceeds of life insurance policies.

One way to save on costs is to open an account with a pooled trust like Midwest Special Needs Trust, which Zafft helped start. The organization, which was set up through a state statute passed in 1989, currently manages assets of more than $16 million and serves residents of Missouri and its eight surrounding states. People with disabilities or their family members need only an initial deposit of $500 and enrollment fee of $350 to establish an active special needs trust account with the organization.

J. Todd Gentry is a financial planner at the Chesterfield office of MetLife Insurance’s MetDesk, a division that specializes in providing estate planning services for children with disabilities. He said financial planners can help estimate how much insurance or money parents would need to fund special needs trusts. Close estimates, he said, can be accomplished by using calculations that take into account the costs of respite care, medical care, transportation and clothing, among other things.

“Every child with disabilities is as unique as a snowflake,” Gentry said. “The cost can vary from $100,000 to $2 million a year.”

Gentry said he also advises many parents to reach out to their own parents for help — what he calls inter-generational estate planning. A grandparent contemplating a move to a nursing home, for example, can transfer all accumulated wealth to a grandchild’s special needs trust, he said. That grandparent then could become eligible for Medicare to pay for nursing home care without incurring tax penalties.

Michael Chiodini, a financial adviser who works with Gentry at MetDesk, said even savvy people find it hard to estimate the future cost of a child with disabilities because they can never be sure how the disability might progress or regress.

He speaks from personal experience. Chiodini has a 2-year-old son with cerebral palsy. He said he and his wife incur costs of about $20,000 a year to provide their son with health care and lifestyle needs that are not covered by health insurance. Those costs, some of which are tax deductible, include doctor visit co-payments, therapies, transportation and medical equipment.

Chiodini said he has clients who spend about $80,000 year on a child with disabilities, and estimates housing costs alone for his son would run from $40,000 to $60,000.

While setting up special needs trusts, parents need to carefully think about who they want to appoint as a trustee in charge of distributing funds for their child’s care, said Kathleen Bilderback, an attorney at Affinity Law Group LLC in Chesterfield. She said parents also need to think about what should be done with the money left in a trust should its designated beneficiary die.

The wrong choice of a trustee can have unintended consequences or bring family disharmony and disputes, Bilderback said. A possible conflict of interest could arise, for example, if a parent appointed an older sibling of the child as the trustee and simultaneously named that sibling as the heir to the trust if the child were to die.

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