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Financial
Planning
Frequently Asked Questions
& Answers
Q:
I want to give my son a gift of a thousand dollars. Will this prevent
him from receiving government benefits?
A:
Not if he has
no other income. Medicaid and SSI have a "means test" and will not pay
benefits if the individual has anything in excess of $2,000 (current limit).
Social Security
and Medicare benefits would not be affected by an inheritance.
Q:
Will
I protect my daughter's financial security if I leave the money to her
older brother to use on her behalf?
A:
Though some parents
consider doing so, this approach is not a wise choice, for several reasons.
What you suggest is called a morally obligated gift and unfortunately,
it has no "teeth". It is not legally enforceable and there is no guarantee
that the money will be used for your daughter. Though your son may have
the most sincere intentions now, his personal situation could change in
the future. He might suddenly find himself in desperate need due to illness,
divorce, loss of a job, kids in college, etc., and feel enough financial
pressure to use your daughter's inheritance to meet his own immediate
needs.
In the event of your
son's death, the inheritance money would become part of his estate and
pass to his spouse, children, and other heirs, not to your daughter. Most
lawyers caution parents not to leave a disabled child's inheritance to
a third party, even another sibling. The best way to protect your daughter's
interests is to set up a supplemental trust and name someone in the local
area as one the trustee. (This could be an attorney, a banker, an accountant,
or a non-profit agency or charitable organization.) You may name one co-trustee
to manage the money and the assets in the trust and another as your son,
to look after your daughter's life situation.
Q:
I was told that
to protect my loved one's future SSI, I should leave him nothing (disinheritance).
Is this the best thing to do?
A:
What
you were told about completely disinheriting your loved one is no longer
true, though years ago parents did receive that advice. Probably the
best way for you to protect your family member is to have your attorney
set up a special needs or supplemental trust. If the trust is properly
worded, the funds it distributes won't jeopardize continued eligibility
for government benefits, because they are not available directly to your
loved one. You can be the trustee while you are alive and able.
Through
your will, you can leave specific
assets to this trust. In the trust you name a future trustee to manage
the money, specify the purposes for which the trust funds are to be spent,
and name an alternate trustee, should the first one be unable to serve.
Trustee powers may also be split between two people; one trustee invests
and manages the money while the other assures that your loved one's needs
for a quality life are being met.
Q:
Is there a certain
kind of trust that I can set up that will still allow my loved one to
receive SSI and other government benefits?
A:
A supplemental or special needs trust can protect the
assets you leave for your relative's benefit from invasion by the state.
It allows your family member to remain eligible for SSI and other government
programs which use a "means test" or asset limit.
However,
protecting a person with a disability requires that a trust have very
specific wording and intent. Not every lawyer (regardless of how qualified
in another field) knows the details necessary to protect a beneficiary
with a disability. You must use an attorney who has the requisite knowledge
and experience
Q:
There seem to
be so many kinds of trusts it is confusing…why do I need one anyway?
A:
That many different kinds
of trusts exist is one reason to make sure that you work with an attorney
who is experienced in preparing trusts for someone with a disability.
The most important reasons for using a trust are that your loved one's
eligibility for government benefits will be protected, and the quality
of life that you desire can be maintained.
Q:
I don't have
a lot of money…how can I fund a trust?
A:
Whatever
assets you put into the trust makes up its "principal." You can use
money, investments or property of value to make up the principal. Don't
overlook the value of antiques, art works or personal collections (coins,
etc.) Some items and methods of funding a trust commonly chosen by families
include:
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1. Making the trust
the beneficiary of an insurance policy* you now hold
2. Using your
will to leave money and/or property to the trust (e.g., the family
home)
3. Placing cash,
stocks, bonds, or other assets into the trust now, while you are
still alive.
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* Before taking
out a new policy, consult with a certified financial planner (insurance
professional) to decide which policy is most affordable and best suited
to your situation. The types and costs of policies can vary greatly.
Q:
How much
money do I need to put into a supplemental trust?
A:
That amount is always highly
individual, and depends on the resources of the family and the needs of
the beneficiary. To decide the amount you need to place in a supplemental
trust, consider the cost of items (not covered by government benefits)
that you now provide to your loved one. These might include any special
medicines or therapies, medical bills not covered (dental care, etc.),
holiday clothing, personal items, entertainment, vacations, and insurance.
If he/she lives elsewhere, there may be favorite things your relative
enjoys or needs during visits home. Consider the cost of: replacing electric
toothbrushes and razors, toiletries; events like community outings, trips
to the ice cream parlor or family pizza parties; and, anything else that
has become a tradition or routine for family visits. These are the kind
of "extras" you'll want to see continue in the future.
Once you have an average monthly
figure of these extra costs, multiply it by 12 to get the yearly total.
Consider this amount and factor in inflation of at least 3.5% per year.
(What costs $100 this year will cost $103.50 next year.) Remember to include
language in the trust that allow it to pay for new devices/items which
don't presently exist, but may later be commonplace (e.g., CD players
were unknown 20 years ago). Most trusts are set up to last for the lifetime
of the beneficiary. If your loved one is in relatively good health, that
lifespan could reach 75 years.
Since your
trust will only supplement government benefits, it need not be extremely
large. However, a trust must usually pay it's own fees, taxes and other
costs. It should be large enough to earn the amount of income you wish
to distribute for the benefit of your relative each year, as well as cover
these maintenance costs. Also, you can specify certain duties for the
trustee. (e.g., monthly visits to monitor your loved one's well being.)
When in doubt about the best way and the amount needed to "fund" the principal
of your trust, consult your financial advisor.
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