Serving as a caregiver for a child or adult who has special needs brings unique challenges and is an admirable role. Each disability can present unique challenges, which require unique solutions. However, one common challenge involves managing financial resources, which can make a significant difference in the quality of life and care of the individual.

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Government programs can help cover some of these costs through Supplemental Security Income (SSI) or Medicaid, but they are subject to qualification. There are additional ways to provide financial support to those with special needs without compromising available benefits.

Special needs trusts are intended to supplement, but not replace, the basic support received from government aid, which is generally intended to provide food, shelter, and clothing. Typically, the main purpose of a special needs trust is to improve the quality of an individual’s life without disqualifying them from eligibility to receive public benefits. An ABLE (Achieving a Better Life Experience) account is a relatively new type of account authorized by Congress that could be helpful in providing such supplemental resources.

Are all ABLE accounts the same?

ABLE accounts are set up by states and can vary from one state to another. Some states accept out of state residents, so you are not limited to your state of residence. Arkansas, Missouri, Kansas, and Oklahoma all have options for ABLE accounts, and information on eligibility and applications can be found on their respective state treasury websites.

In many states, the benefits and drawbacks are the same:

  • Investment earnings in the account are tax free.
  • Each individual may only have one account, and there is a cap on annual contribution of $16,000.
  • SSI benefits will be reduced, should the value of the account exceed $100,000.
  • Maximum account size, which varies from state to state.
  • They are easier and less expensive to setup than a special needs trust

What if I want to provide more?

Given the contribution and total cap on ABLE accounts, a better approach for a more affluent family may be to create a special needs trust, which can provide unlimited funds without jeopardizing government benefits. The trust can be revocable—providing flexibility and allowing parents to add or subtract assets—or irrevocable—creating added protections from creditors for funds compared to a direct gift to family members. However, this is a complicated area of law, and the rules vary from state to state, so the advice of a lawyer well-versed in special needs trusts will be essential.

What can a special needs trust cover?

A special needs trust can cover a broad range of expenses, most often those intended to enhance the life, health, and welfare of the beneficiary. Here are examples of distributions that may be made from the trust (if not otherwise covered):

  • Dental, medical, and pharmaceutical expenses
  • Therapy or rehabilitation services
  • Wheelchairs and other special equipment
  • Psychological services expenses
  • Education
  • Publication subscriptions
  • Attorney fees
  • Community support
  • Recreation, and leisure

For instance, the trust may be able to provide funds for travel (including the cost of a companion to accompany the beneficiary), summer camp, beach trips, movies and social events, or even a new computer.

What else can a special needs trust do?

A caregiver is irreplaceable, but their experience and knowledge does not need to be lost as well. When a special needs trust is created, written instructions, guidance, and direction will be developed for any successor caregiver. It is especially important to realize the things you have learned, which have become second nature, are not necessarily things the individual with special needs will be able to ask for. The trust document should be as detailed as possible, including information well beyond the financial elements, including information such as the person’s likes, dislikes, needs and preferences. Also, one may itemize the individual’s favorite foods, forms of entertainment, or special occasions to celebrate each year.

Someone familiar with the individual and their unique needs can be a helpful caregiver, but accidents and life events may prevent even those with the most noble intentions from filling the role. Choosing a corporate fiduciary to handle the special needs trust boosts confidence someone will step in to follow instructions as needed. An added benefit of choosing a corporate fiduciary is their familiarity with the legal requirements of special needs trusts and government benefit programs, including the duty to be neutral on trustee issues, putting the client’s needs first, and investing assets prudently. Plus, they are equipped with the investment management skills necessary to help make the trust assets last.

How should I get started?

If you are a young couple and just found out you have a child with special needs, funding an ABLE account annually to be grown into a significant resource is likely a good option. You can explore the options above for your state and start right away. It may also be worthwhile to consider additional insurance. If you are a grandparent or parent taking care of an adult with disabilities and want to consider the best way to handle your estate to ensure their lifetime care, schedule a time to speak with one our trust officers. They can help explain the options, and restrictions, and can assemble a team of experts based on your goals.

This content has been prepared by The Merrill Anderson Company and is intended as a general guideline.

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Arvest Wealth Management does not offer tax or legal advice – consult a professional.