Overview
Parents of a special needs child
have neverending concerns about their child’s care. For instance,
where will the child live should something happen to his or her
parents? Who will care for the child, and where will the money
come from?
How much do you know about financial planning for a special needs
child?
Take this short quiz now or later.
- True or False. The plan that is often most helpful for
families needing to make provisions for a child with special
needs is a grantor retained annuity trust. This device allows
a trustee, typically a family member familiar with the child's
needs, to use funds placed in a trust by the child’s
parents for the necessary care.
- True or False. A charitable
remainder trust can be a favorable planning mechanism for
the parents of a special
needs child.
- True or False. If a charitable remainder
trust is used and a minor child is the income beneficiary,
any income
tax deduction could be drastically reduced because
of life expectancy differences.
|
Read here to learn more about financial planning for a special needs
child
Fortunately, help is available, with local, state, and federal programs
easing some of the monetary demands on the family. In addition, there
are private groups that can help with long-term care. However, if
you wish to provide the highest level of care, you will need to plan
for the best possible use of your funds.
Meeting Needs
The plan that is often most helpful for families needing to make
provisions for a child with special needs is a special needs trust.
This device allows a trustee, typically a family member familiar
with the child's needs, to use funds placed in a trust by the child’s
parents for the necessary care. It offers sufficient flexibility
to handle almost any situation, while providing privacy for the details
of the arrangements made by parents, grandparents, or others who
wish to make a gift to a special needs child.
Many people may assume that trusts are only for the very wealthy,
however, a special needs family’s financial situation demands
prudent planning to prevent loss of agency funding after the parents
are gone. For example, assets received as an inheritance might
disqualify an adult child from receiving public funding for housing,
medical care, and other government programs. Assets placed in a
trust, however, and directed to uses other than those available
through government sponsorship remain available for the individualized
care a parent might want to provide.
While the special needs trust can establish a mechanism for maintaining
financial care for a special needs child, some families have utilized
the charitable remainder trust (CRT) as an additional mechanism
to help secure future income for a special needs child. As its
name implies, a CRT benefits a charity as well as an individual.
Here’s how it works:
A couple starts by transferring liquid, highly appreciated assets,
such as mutual funds or publicly traded stocks, into their CRT.
The couple receives an annual income from the trust for a term
of years or their joint life expectancies. The IRS allows the couple
to take a current income tax deduction for the present value of
the property that ultimately passes to the charity they selected--
generally one involved with the special needs of the child--when
the CRT terminates. [Note: In the case where a minor child is the
income beneficiary, this tax deduction could be drastically reduced
because of life expectancy differences.] Any property put into
the trust is out of the parents' estates, and when the trust terminates,
a sizable legacy will be left to the charity of their choice. In
addition, there is no capital gains taxes due for transfers of
highly appreciated property to the CRT.
The use of a CRT to benefit a special needs child may be advantageous
in many ways. The income stream is used for the benefit of the
child, with either the child or the parents as the named income
beneficiaries. If the child is the income beneficiary, the trust
can pay income for the child's life, and the parents, as financial
guardians, will oversee the use of the income. Should the child
outlive the parents, a guardian will step into the parents' role.
A Parting Thought
Certainly, planning for a special needs child is emotionally challenging
and financially demanding. However, with a solid plan in place,
you can help ensure the best possible care for your child, both
now and in the future.
Quiz Answers:
1) False; 2) True; and 3) True
|
