Shannon King Nash, Esq.
Jane and Mark Ramsey are an average family1. They
have two kids - Jennifer age 12 and Jimmy age
3. Their assets include a house valued at $200,000
(but with no equity), two cars together worth
$15,000 and a $100,000 life insurance policy.
Jane and Mark have a combined gross income of
$100,000. They also have 401k plans and stock
worth $35,000. Recently, they learned that Jimmy
has autism. Since they aren't rich, they don't
think they need sophisticated estate planning
vehicles like special needs trusts, right?
The Ramey's need to think again. Every parent
of a developmentally challenged child needs to
invest in careful planning to protect their child's
future. The less the family has, the more tragic
are the consequences of a failure to plan.
What's the Big Deal?
Supplemental Security Income (SSI) is the federal
needs-based program that many disabled children
and adults may be eligible for if they meet certain
income limits. SSI beneficiaries may also get
Medicaid (medical assistance) to pay for hospital
stays, doctor bills, prescription drugs, and other
health costs. However, once a person's income
exceeds $2,000 a year, they are no longer eligible
for SSI or Medicaid.
Over $13 billion is spent annually to care for
individuals with autism. For the average affected
family this translates into $30,000 per year.
Many parents believe that needs-based programs
like SSI and Medicaid will take care of their
child when they are gone. This is a common misconception.
Take our family the Ramseys. Jimmy's inheritance
will have to be completely spent before he's eligible
for the needs-based programs. With Jimmy's half
of his parent's estate (about $75,000), he will
be forced to spend all but $2,000 of his inheritance
before he becomes eligible for a single dollar
of assistance. And he may be forced to spend most
of this on health care expenses. At this rate,
Jimmy will have exhausted his inheritance in less
than three years. So much for the nest egg that
the Ramsey's had hoped to leave.
Even families who believe their child won't need
government assistance (for example, a family with
a million dollars in assets) this could still
be a problem. Their child will probably not be
able to qualify for private health insurance after
the parents are gone and perhaps before depending
on their employer's health insurance policy. Medicaid
might be the only way for their child to get needed
health care services. But this child will not
qualify for Medicaid because of his huge inheritance.
With people living longer and the costs for care
of autistic people increasing, this huge inheritance
will likely be completely spent long before the
parents had hoped - leaving the child to spend
his later days in poverty.
1The Ramsey's are a fictional couple and are
being used to illustrate some of the points in
estate planning for special needs children.
The Money Issue
Although there is no bright line rule for when
a parent needs a special needs trust, many families
should have one. Special needs trusts are probably
not necessary for parents living at the poverty
level, which was $18,100 for a family of four
in 2002. These families are already on government
assistance and the kids will continue on this
assistance even after their parents' death.
But for the majority of American families - those
earning about $65,000 a year for a family of four
- a special needs trust is crucial. These families
typically have very little in tangible assets,
second mortgages on their homes, and little to
no savings (likely due to paying for costly therapies).
But even though they not wealthy, their children
aren't used to relying on government assistance.
And they often have life insurance (mostly term
life insurance or employer provided), which may
be valuable. Estate planning vehicles like special
needs trusts can ensure that this life insurance
will in fact be available to retain their child's
quality of life.
Special Needs Trust
A special needs trust is a vehicle that provides
assets from which a disabled child can maintain
his quality of life, while still remaining eligible
for needs-based programs that will cover basic
health and living expenses. Here's how it works:
the Ramsey's create a special needs trust to benefit
Jimmy that provides instructions as to the level
of care they want for him. They also create a
will that leaves certain assets to the special
needs trust - no assets are left directly to Jimmy.
After they are gone, the people they have chosen
to manage the trust (trustees) can spend money
on certain defined expenses for Jimmy's benefit
without compromising his eligibility for needs-based
In general, basic living expenses such as food
and shelter may not be provided for through the
special needs trust. But essential quality of
life expenses such as clothing, vocational training,
facilitative technologies and travel (both around
town and long distance) may be provided. Certain
health care expenses that are related to the person's
disability (occupational therapy, speech therapy,
etc) may also be provided for by the trust. However,
more universal health care expenses such as nonprescription
vitamins and antibiotics may not be provided.
Parameters vary from state to state so parents
should check with a qualified attorney in their
state. (See Side Bar for questions to ask a prospective
attorney and information on how to find an attorney
in your area).
Crucial choices you will need to make in establishing
a special needs trust include:
The trustee can be a family member or close friend
who knows your child and who is organized, financially
savvy and above all ethical. Some families opt
for a professional trustee (usually working for
banks or financial institutions). Whatever the
choice, it's crucial for the trustee to understand
the expenses that can and can't be provided for
under the special needs trust.
Purpose of the Trust
This provision should enumerate all of the reasons
for establishing the trust and might include the
· Where should the child live? (i.e., a
group home vs. assisted living at home)
· What specific social activities should
be supported by the trust? (e.g. special Olympics,
· What specific technologies or treatments
should the child have access to?
· With whom should the child have regular
contact facilitated by the trust? (e.g. plane
tickets and other travel arrangements)
Special needs trusts may be completely revocable
(altered) at any time. But there are disadvantages
to revocability. Revocable trusts can create higher
taxes at death since they are included in the
parents' gross estate for purposes of the estate
tax. Also revocable trusts can create a problem
should circumstances change, like one parent dies
and the new spouse wants to change the terms of
the special needs trust. One solution might be
to make the trust irrevocable when formed such
that it cannot be changed. But parents should
consider putting an "irrevocability trigger
provision" into the revocable trust. Basically,
the irrevocability trigger kicks in when the change
occurs - such as death of a parent, divorce, or
when the trust's assets reach an amount that is
likely to cause a huge estate tax burden.
Others Estate Planning Vehicles
Special needs trusts work best with an integrated
estate plan. A will or similar vehicle that directs
which funds will go into the special needs trusts
is essential. But make sure to understand how
the special needs trusts works with the will.
A "stand-alone special needs trust"
is created during the parents' lives and can be
funded by the parents though provisions in their
will. Also other family members like grandparents
may make contributions to this trust. However,
if the special needs trust is contained inside
the parent's will, known as a "testamentary
trust", it doesn't actually exist until the
parent dies. In that case, only the parents or
those who die after them can fund this trust.
In addition to a trustee who manages the financial
aspects under the special needs trust, the parents
should also consider appointing a guardian who
will manage the day to day care of their child.
Although they can be the same person, parents
should include as many loving people as possible
in caring for their child with autism.
Finally, a letter of intent or a life plan that
details the parents' wishes for their child may
be helpful. While these life plans are very useful
in keeping the child's care as close as possible
to normal, they are not legal documents. In fact,
they do not have to be followed by the child's
new guardian. But because life plans provide very
valuable detailed information, they are often
used in conjunction with other estate planning
Whatever estate planning vehicle(s) is used, it
is important to set up something before it is
too late. With only a few hours of careful planning,
the Ramseys have ensured that Jimmy will be able
to maintain his quality of life after they are
The author would like to thank estate planning
attorney Diedre Wachbrit, who served as an expert
resource for this article.
The following resources provide additional helpful
information on special needs trusts.
-- This website has a wealth of information on
SSI including an online program called the Benefit
Eligibility Screening Tool that determines if
your child is eligible for SSI.
http://www.metlife.com - MetLife provides general
information on planning for your special needs
child including wills and special needs trusts
(search special needs trusts on the website's
http://www.wachbrit.com - Estate Planning Attorney
Diedre Wachbrit provides more detail on the common
issues involved with special needs planning and
materials used in connection with a parent training
seminar on special needs trusts.
http://www.amgtrust.com - American Guaranty &
Trust Company has a sample special need trust
agreement and sample memorandum on common issues
to focus on when drafting a special needs trust.
http://www.specialneedsplanning.com - Special
Needs Planning has articles on special needs financial
planning and sample letters of intent.
The Association for Retarded Citizens - This organization
has articles and an excellent booklet called "The
Arc's Future Planning Resources." This booklet
may be obtained on line at http://thearc.org,
by calling 301/565-3842 or writing with $2 postage
to The ARC, National Headquarters,1010 Wayne Ave.
Suite 650, Silver Spring, MD 20910.
National Information Center for Children and
Youth with Disabilities (NICHCY) - This organization
has great articles on special needs estate planning
and a worksheet for costing out the total expenses
of a person with a disability. Visit their website
at http://www.nichcy.org. (search their publications
for "estate planning" and find their
great 20 page guide "Estate Planning ND18")
http://www.naela.com - National Association of
Elder Law Attorneys is a good place to start for
a list of attorneys who are knowledgeable with
special needs trusts.
http://www.wealthcounsel.com - Wealth Counsel
LLC is a consortium of knowledgeable estate planning
attorneys with a database that can be searched
by state and by typing in special needs.
Choosing a Professional
Many attorneys claim to do special needs trusts
when in fact they simply add a sentence or a few
provisions to a regular trust - so finding a specialist
is key. But an attorney need not break the bank.
A special needs trusts may cost between $1,000
- $2,000, with many attorneys offering payment
plans. Of course the cost may vary by state and
by complexity of the estate plan.
California, Estate Planning Attorney Diedre Wachbrit
suggests asking prospective attorneys the following
1. How did you get into this practice area?
Look for a real commitment to helping folks with
2. How long are your special needs trusts?
Yes, length does matter. A special needs trust
averages 40 pages at a minimum.
3. Do you recommend a stand-alone or a testamentary
special needs trust?
An attorney knowledgeable in this area will almost
always recommend a stand-alone trust because this
allows other family members to contribute in their
own estate plans directly to the trust. An inexperienced
attorney will probably recommend a testamentary
trust (a trust that comes into existence when
the parents die) because it's easier for the attorney
4. Should I disinherit my child?
A knowledgeable attorney should resoundingly tell
you no! Some believe that if they disinherit the
child and ask a relative or friend to continue
the child's care, the child will be eligible for
needs-based programs (SSI and Medicaid) and they
have accomplished the same thing as a special
needs trust. But the best intentions may still
leave the autistic child without a consistent
quality of life - especially if the relative or
friend has financial difficulties, divorces or
even worse, dies.
5. How many special needs trusts do I need?
For families with multiple special needs children
this is often an issue. A single trust may give
more flexibility but separate trusts may be necessary
when one child's disability is more severe than
the others and that child is likely to drain the
funds quickly. Since each family will have unique
circumstances, a knowledgeable attorney should
be able to walk you through all of the pros and
6. What is a pay-back provision and do I need
A pay-back provision provides that the special
needs trust will reimburse the state for expenses
(i.e., health care costs under Medicaid) after
the child's death. These provisions are not required
in all special needs trusts and a knowledgeable
attorney should know this. In fact, it is primarily
necessary where the special needs trust is funded
with assets from the child-a common scenario where
a special needs trust is formed for a child involved
in a personal injury accident. But for children
with developmental disabilities, the special needs
trust is established with assets from the parents
and other family members.
7. Will you help us explain this to our family
A committed attorney will at least offer a client-friendly
article or brochure on how special needs trusts
work and how other family members can contribute
to it. This ideal attorney will also be available
to answer questions from family members and/or
their attorneys about coordinating their estate
plans with the trust.
8. Once the special needs trust is established,
is there anything else we need to do?
A knowledgeable attorney should not only help
establish the special needs trusts, but should
also give guidance as to when or how often the
trust may need to be updated. Whether dealing
with a revocable or an irrevocable special needs
trust, all newly acquired assets, such as new
life insurance policies, should be added to the
special needs trust.
Shannon Nash is the proud mother of a lovely 4
year-old autistic boy. She volunteers her time
with several special needs and autism nonprofits
and is a director on the board of the United Autism
Alliance, a Los Angeles based national autism
advocacy nonprofit. She will be chairing an 8-week
advocacy program for parents of special needs
children on Family Life and Financial Planning
sponsored by Pause 4 Kids, a Thousand Oaks Ca
education nonprofit - these materials will be
available on line at http://www.wachbrit.com.
She we also be presenting a seminar on Special
Needs Trusts at the California TASH 20th Annual
Shannon is a tax attorney and CPA. She is a graduate
of the University of Virginia School of Law. She
is currently writing a handbook for special needs
parents on various issues including special needs
trusts. She lives in Westlake Village, CA, with
her son, husband and Chocolate Labrador Retriever.
Shannon may be reached at firstname.lastname@example.org.
"Reprinted with permission from the March-April
2003 issue of the Autism Asperger's Digest, a
bimonthly 52 page magazine devoted to autism spectrum
disorders. Published by Future Horizons, Inc.
For more information: www.autismdigest.com or