Today, Paula Christine welcomes back her first repeat guest, Shannon DeWall of DeWall Law. Shannon is an estate planning attorney, and we're covering the importance of a special needs trust. While this information isn't relevant to everyone, it's critically important to some of our listeners.
A special needs trust is set up to take care of the needs of an individual with special needs, often upon the death of both of their parents. Often, individuals with special needs are eligible for Medicare as well as SSI, or supplemental security income. If someone ends up with a large inheritance, this can jeopardize their ability to participate in both of these government programs, which provide more than just financial benefit.
Who should be the trustee, or in charge of the trust? Most parents assume it will be a sibling or other family member, but that can be an undue burden to place on a relative. This needs to be worked out when the trust is set up, long before the parents have passed. And perhaps the trustee is a lawyer, trusted friend, or other professional. The key is for them to have an understanding of how the trust works, as well as what can and can't be done with that money.
For more information on this topic, you can reach Shannon at Shannon@Dewall-law.com or at 734-772-1220. Her website is: https://dewall-law.com/
Need help with your financial future? Learn more about Paula and her work at PaulaChristine.com or send her an email: Paula@PaualChristine.com
Paula: Welcome to Beyond the Paycheck. I'm Paula Christine. Stop living paycheck to paycheck and start living the life you dream about by taking control of your money. I can provide you with the knowledge and the tools. It is up to you to make the commitment to put them into practice. So today we are bringing back Shannon Dewall, who was the estate planning attorney that we talked to I don't know, probably about two months ago on the basics of estate planning.
And I've asked her today to talk about special needs trusts. And what they're all about, who needs them, how do you fund them? So all the things that you would know or need to know about special needs trust. So welcome, Shannon.
Shannon: Hi Paula. Thanks for having me back.
Paula: So, I know this is a tough topic because I have actually had a couple clients that have a special needs child and you wanna make sure that they're taken care of, but once they get to a certain age, they can get SSI, which I'm not very familiar with.
So we'll talk about that. And if they inherit money, it can throw off their SSI. So first of all, what is ssi?
Shannon: So SSI is a benefit that individuals can get if they meet certain requirements, one of them being having a disability and it's sort of like the cash benefit that can go along with Medicaid, which is the medical benefit.
So the two of those go together, a lot of times.
Paula: So SSI is a government program, correct?
Shannon: That's right.
Paula: So I have a child that has special needs and while I'm married, both my husband and I will take care of them. And then when we pass away, we wanna make sure that that child is still taken care of. So what estate planning documents do we need to have in place?
Shannon: Well, in that situation, it's really important to consider a special needs trust. A special needs trust is a type of trust that can hold property for someone else. A person with a disability that may either now or in the future need government benefit like SSI or Medicaid. And the reason those special needs trust are helpful is because SSI and or Medicaid have certain strict rules about how much a person can own, in their own name. And so these trusts are really helpful because you can fund these trusts or put property into these trusts and the trust can hold onto the property for the use of the person with a disability. But it's not owned by the person with a disability.
Paula: So if I have this child that's on SSI, we pass away and we don't have a trust, what could potentially happen to their benefits?
Shannon: So if there's no planning in place, there's not one of these kinds of trusts we talked about then they would likely get, their share of an inheritance.
And then that money would go into that person's name, so they would own that property. And that can be a problem because now all of a sudden you have, an increase in your assets and are no longer eligible for the government benefits and these government benefits. One might say, well gosh, let's say they got a lot of money. Why do they need government benefits anymore? But there are some benefits for individuals with disabilities that you can't actually pay for. You have to be on Medicaid. And Medicaid will provide that program. So some day programs and things like that are really helpful and all of a sudden with an inheritance, you're not eligible anymore.
So that gets taken away. And I should probably mention here too that there are two kinds of special needs. trusts One is what we were talking about before called a third-party special needs trust. And that's where someone else, like parents put their money into a trust for their child. And then there's a first party special needs trust where like we're talking about now where a person inherits money in their own name and they wanna keep their benefits, they can then create their own trust and put it into a first party trust.
But there's some pros and cons.
Paula: Yeah. A little bit more than we should probably go into today, huh?
Shannon: Sure. Yep. Maybe you'll invite me back again and we can talk about it.
Paula: Of course. You're always welcome back. Okay, so I set up the trust, my spouse and I have passed away. How does it work now? How does it get the benefits to the child?
Shannon: Well, that's something we would design, and the estate plan for the parents, and we would go through all of their different kinds of properties, that could be real estate or cash or stocks or life insurance. And try to decide which of those should be put into the special needs trust.
And typically we do that when someone passes away, when the parents pass away, like with a beneficiary designation.
Paula: So what would this money be used to cover for the child. I mean, can they use it to buy them a home or?
Shannon: Yeah, so that's a great question. There are certain things you'd wanna use the money for and certain things you wouldn't wanna use the money for.
So, for example, the trustee who's the manager of the money and the trust, would not want to give the money directly to, the beneficiary of the person with a disability. If that person needs something, the trustee is gonna want to pay for that directly, in other words, not give the money to the person with a disability for them to go buy it, because then now they have that asset.
So it's really important for the trustee to understand, what can I pay for, What should we not pay for? What does Medicaid cover? So you really wanna have a trustee who's really familiar with those government benefits and what they can and cannot pay for.
Paula: Yeah. Cuz usually I would think that the trustee would be like a child or another child, maybe or another relative.
Shannon: That's really, that's probably the toughest decision that clients have to make when we're designing these trusts. When I have them in my office and we're talking about this. The trustee is a really important decision. A lot of times, families want to make that a sibling or, another family member, and then we have to kinda look and see, is that the best decision?
How is that gonna affect their relationship with the beneficiary? Are they gonna be able to say no if the beneficiary asks for money? And it really isn't a good choice to give that money. Does that person, are they really good at record keeping? Are they really familiar with all the benefits and budgeting and things like that?
So if a family member fulfills all of those requirements, that's great. We also have an option to look at different agencies, maybe an attorney, a CPA. There's some nonprofit organizations that will also act as trustee, and they have more resources to be able to keep up with all of those things.
Paula: And I would imagine they have the knowledge that, I mean, if I was made somebody's trustee for their special needs child, I would have a clue what to do. Right?
Shannon: Right. And we get those calls too, where we can help educate folks. Maybe we didn't draft the trust, but we now have someone calling in who's the trustee and they have no idea how to do it, so we can help educate them.
Paula: So let's recap for just a second so I can wrap my head around this conversation. We have a child that has special needs. They're gonna have additional expenses other than what their SSI covers. So if you pass away, you have this trust and somebody's gonna manage that trust, called the trustee. And they're gonna pay out for, if it's housing or clothes or food, anything that the child needs.
Shannon: They do have to be careful on what they're paying for because if certain things are provided to the beneficiary, it can actually reduce the amount of money they get through SSI. So, that's part of that education and other tools that we can use.
Sometimes we use an ABLE account which is a special account the beneficiary can have to pay for some of those things that should not come from the trust. So we have several tools together to make sure we're following the rules and protecting that beneficiary's eligibility for those benefits.
Paula: Let's say we don't have a lot of assets. Maybe we just have lived a long life and we're in our eighties and we've got a couple of other children we wanna make sure get part of the inheritance. Is there another way to fund it to make sure that child is still taken care of?
Shannon: Fund their special needs trust?
Paula: Yes.
Shannon: So you might be talking about maybe a life insurance policy.
Paula: Mm-hmm. , that's where I was going!
Shannon: Yeah. Sometimes we have parents that'll do that and so they'll kind of earmark the life insurance to go just to that special needs trust. That is one option.
Paula: Yeah. Lots of times we look at what we call second to die policy, where it pays on the second death to fund those trusts. Well, to fund a lot of things. So when the second parent passes, then that money is paid into the trust to cover, whatever needs that child will
Shannon: have. Yeah. And those are a great option because that's exactly when I recommend funding those trusts too, is when you know the last of the parents has passed away. Until then, the trust really is empty, doesn't have anything in it.
Paula: Oh, okay. So it happens all at the second death. I didn't realize that. This is really a complicated subject.
Shannon: It is.
Paula: There's a lot more going on than I knew about, and I know often I've heard it before from parents that have children with special needs. I'll ask them, what are your thoughts that will happen to Susie, at your death?
And a lot of them say to me, Oh, our daughter Brittany will move them in and take them on. And I. I often say to 'em, Isn't that a lot for Brittanyand Brittany's, husband or Brittany's, children? A lot for them to take on?
Shannon: Right. And what if something happens to Brittany, then what's the plan?
Paula: Right, right.
Shannon: I often talk to parents about that too. And what I encourage them to do, and we help them with, is to start looking now and maybe they look at assisted living facilities or adult foster care homes. Those kinds of things. Or moving into a house with other individuals may be friends of their child with a disability and they can set that up with a caregiver.
So, I'd rather have them taking the tours and getting knowledgeable about that while they are not in a crisis mode, and they have time for that so that they can formulate some opinions about what they want to have happen. And that way if Brittany, in our situation here, can't do it, then we know what their wishes are and we can be planning for that.
Paula: Yeah, I just think that's a lot of burden to put on the other children. And the family, to be responsible to take care of this child, even though I know they love them and everything they want the best for them. It's just a lot when you're trying to manage your own life, and your own future and having to take on a child of special needs. So how do I choose an attorney to help me with this trust?
Shannon: That's a great question. I recommend that people interview the attorney and see, how knowledgeable is the attorney about the subject? You want to have an attorney who is not just dabbling in this area, but is practicing in this area on a regular basis.
The rules for, this area are changing all the time, and you need an attorney who's dedicated to keeping up with that. It's also important that the attorney asks the right questions and is a good listener. The documents and these plans are not cookie cutter type things, and it's not something you just have a form, and you're swapping out names.
So each beneficiary is unique, each family is unique, their needs are unique, and so the planning needs to be unique.
Paula: I would think of anything, this just really has to be done correctly. I mean, you would hate for your child to lose their Medicaid benefits because somebody didn't write the trust in the correct way.
Shannon: Right. And you won't know if that happens or not, until the parents have passed away and so it's too late. It's not like you can go back and undo that. So yeah, it's really important to make sure it gets done the right way the first time.
Paula: I'm sure there are attorneys out there that are specialized in special needs.
Shannon: Yes. Usually that kind of goes along with elder law. So a lot of elder law attorneys are also elder law and special needs attorneys. It kind of goes together cuz they're very similar areas with similar rules. We say, start with Googling. And Google for one in your area, and read the reviews and you can always call and ask and do interviews and make sure you're picking the right attorney.
You want one that you know is gonna fit with what you need.
Paula: Or, easy they can just call you.
Shannon: Well, that's true. Absolutely. We are here to help.
Paula: We just made that so easy for everybody.
Shannon: That's right.
Paula: So if they wanna call you, how do they get ahold of you?
Shannon: They can call my office at 734-772-1220, and they can just email me too. It's Shannon@Dewall-law.com.
Paula: Okay. Shannon's contact information will be in the show notes, and if you'd like to reach out to me, you can contact me at paula@paulachristine.com. Shannon, great information. As always. I think we could even dive deeper into this conversation. Because there's just so much. I mean, I think we just hit the tip of it.
Shannon: Yeah. There is so much information, but thanks again for having me on.
Paula: Oh, you're welcome. Thanks for joining us, and we'll talk to you next week.