A Legacy with a Special Purpose

By April 28, 2013February 28th, 2014No Comments

According to the 2010 census, people with special needs make up nearly 20% of the U.S. population.¹ Furthermore, nearly 20 million American families are raising children with disabilities.²

Taking care of a loved one with special needs can be an expensive proposition. For example, the lifetime care of a child with autism could cost an estimated $3.2 million.³

If you currently provide day-to-day assistance and/or financial support for a relative with special needs, you may also have specific estate planning concerns. Fortunately, a carefully crafted trust could be used to help manage the finances of individuals who may not be capable of handling their own affairs.

A trust could also be used to help preserve assets for minor children until they reach a particular age, spread out distributions over time, and even apply conditions that heirs must meet before receiving an inheritance.

Here are several examples of trusts that could help you control the distribution of estate assets.

Revocable living trust

When a living trust is created, legal ownership of personal assets is transferred to the trust. However, the trust maker maintains complete control of the assets in the trust, which can usually be amended or revoked. Most types of assets can be held in a trust, including real estate, life insurance policies, investment accounts, and valuable personal property such as jewelry, art, and antiques.

A living trust may replace a will as a family’s primary estate distribution document. Unlike a will, a properly established living trust remains private and avoids probate. Therefore, when the trust maker passes away, estate assets typically become available to trust beneficiaries without any of the delays or expensive court proceedings that may accompany the probate process.


Special-needs (or supplemental) trust

A disabled person who receives a life insurance payout or inheritance directly might be disqualified from government assistance programs. Placing assets in a trust could help keep the individual’s income or net worth within the eligibility limits for federal benefits.

Distributions from the trust can be made at the discretion of a trustee to pay for a beneficiary’s special needs. A special-needs trust may be established as a stand-alone trust or may be incorporated into a revocable living trust.

Incentive trust

Some people prefer to leave an inheritance that enhances family members’ quality of life without enabling beneficiaries to become unproductive or financially irresponsible adults. Incentive provisions outline requirements or milestones that must be met before a portion of the trust money is awarded. Provisions may be drafted to promote education, entrepreneurship, public service, or philanthropy; to supplement earned income; and even to discourage certain harmful behaviors.

If parents die without making the appropriate arrangements, the courts will decide what happens to their assets and who will become the physical and financial guardians of their underage or disabled children. Most families would prefer to make these potentially life-altering decisions for themselves.

The use of trusts involves a complex web of tax rules and regulations. You should consider the counsel of an experienced estate planning professional and your legal and tax advisors before implementing a trust strategy.

1) U.S. Census Bureau, 2012
2–3), September 28, 2012

The information in this article is not intended to be tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2014 Emerald Connect, LLC
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