How Much Money Do You Need to Fund a Special Needs Trust?
What amount is needed to fund a special needs trust? There is no right or wrong answer to that question. It really depends on the needs of the child and the financial ability of the family.
As parents and guardians, you are already incurring ongoing expenses for your child. In addition, you’ll want to make arrangements to provide financial security for your child when you are no longer alive. The challenge of future planning and the funding of a special needs trust is knowing that the availability of future public benefits is uncertain and the future needs of the person with a disability are difficult to predict.
The truth is that public benefits alone will never be sufficient to provide quality care, nor can a family afford the high expense of caring for a person with a disability. It has to be a joint effort. The following steps will help you determine the best way to fund the Trust as well as the amount that will be needed to care for your child.
Step 1: Determine Your Current Expenses
One way to start is by calculating how much you are currently spending on various items for your child. Many of these expenses will remain forever, and others will be added over the years. For the long-term future, after you are gone, the following are items that may need to be considered to determine the true expenses.
Where will your child live? Your own home, a group home, or will you purchase a home? What is the cost of the rent/ mortgage, insurance, utilities, taxes, and maintenance?
What kind of vehicle will be needed for transportation to and from work? Will it be provided by public benefits?
All treatments and therapies not covered by Medicare/Medicaid and private insurance should be taken into consideration. Also, include premiums for any private insurance carried by the individual. In addition, special equipment like wheelchairs and other medical equipment should be considered.
These include but are not limited to vacations, grooming, and entertainment.
This is the most difficult part. Will a family member provide the care and supervision? Will you need to consider a group home or private care?
Step 2: Estimate Future Expenses
After listing the necessary items, you may estimate future expenses based on your current expenses on any of these. If you do not have expenses toward certain categories at this time, they will most likely be necessary in the future. Research those items and check with others who may already have them to get an idea.
Once you have arrived at the total amount of your monthly or annual expenses, determine how much will most likely be covered by public benefits—such as SSI, SSDI, Medicaid, and Medicare—as well as employment and any settlement. Once you determine your monthly/annual out-of-pocket expenses, you can then estimate the future expenses based upon your child’s life expectancy and inflation to determine the amount that will be needed to be funded.
You will need calculators to do this type of calculation. You may also use calculators available on the Internet that can help you estimate this amount.
In most cases, the amount required based upon your child’s life expectancy and needs are high, and the funding responsibility can be overwhelming. While the above list of expenses is shown as a guideline, families are advised to plan the funding based on their financial ability. They may be able to fund the entire amount needed or partially fund it to the best of their ability.
For guidance and planning options, it is important to work with financial advisors with expertise and experience in working with families who have children with special needs. Parents are advised to plan for their own retirement and financial security, as well as the needs of other children of the family, in addition to providing for the future of their child with disability.
Step 3: Do Your Financial Planning
Families that have children with special needs have the same needs and planning requirements as other families. However, their planning must also include an additional person and sometimes more than one person. These families will need to take into consideration what assets will be left after they are gone that will fund the special needs trust.
Parents face the challenge of longer life expectancy, uncertain and fluctuating investment conditions, and possible erosion of assets due to possible long-term care necessary for themselves. A good option is to create assets that they will not need but can be available for the special needs trust Permanent life insurance on both parents (Second-to-Die), is often a good option. Life insurance uses leverage to create assets, and the death proceeds are tax-free.
Special needs planning continues to remain complex and challenging. It requires coordination with a well-designed financial plan for the parents as well for well-meaning relatives who wish to gift to the special needs trust.
In conclusion, no definite amount can be considered as right or wrong or high or low for a special needs trust. The parents' ability to fund the needed amount through proper planning is the key.