Tiffany Poland, 37, speaks candidly about the day she became a quadriplegic. “I was in a car accident 22 years ago when the state (of California) removed a stop sign off the street,” says Tiffany. “We sued [and won a settlement], but in order to keep the money we had to put it in a special needs trust,” she says.  People like Tiffany who have suffered a catastrophic injury or who face another serious disability like autism have unique financial planning needs.  Disabled individuals are entitled to benefits from federal and state programs that pay for most medical care, housing and other community services. But if they mess up their financial and estate planning, they could lose their ability to qualify for Medicaid and Supplemental Security Income. Regardless of socioeconomic level, disabled individuals should accept public aid.  Under federal and state laws, anyone 18 or older with disabilities can’t receive these benefits if their assets exceed $2,000. To navigate around that law, a special needs trust (also called a supplemental care trust) must be created so that the disabled individual doesn’t own the assets. As a result, “proper estate and financial planning is critical” so that the disabled person’s public aid is protected, says Susan Mesenbrick, national manager of Wells Fargo Private Bank’s Special Needs Trust group. That means it is essential to hire an estate lawyer and financial planner with special needs experience.  The market for such services is huge. An estimated 54 million adults — nearly 20 percent of the nation’s population have a mental or physical disability — and over 6 percent of American children between the ages of five and 15 suffer from a disability. To service that market, a number of financial services units such Wells Fargo Private Bank’s Special Needs Trusts, the MetLife Center for Special Needs Planning, MassMutual Financial Group’s SpecialCare group and Merrill Lynch Wealth Management work directly with families on the complex special-needs financial planning process.  A special needs trust can be directed in two ways: institutionally and individually. In a court-awarded settlement like Tiffany’s, the court directs the special needs trust. This is called an institutional or first party special needs trust. An individual special needs trust, is just that, created by a family member who has a dependent with special needs and wants to insure their quality of life after they die as well as protect their public aid. The most significant difference between the two is that with a first person trust, “the state has a lien on the trust and when the beneficiary passes away, Medicaid is paid back,” says Mesenbrink. With an individual trust, there are no payback provisions.  The ways these two types of trusts are funded also differ. An institutional trust is funded with a court-awarded settlement. Tiffany, whose aunt found out about the special needs trust, is a co-trustee with Wells Fargo Special Needs Trust unit that administers Tiffany’s trust. The court decides whether the bank will act alone as a trustee or with as family member as a co-trustee. Each year, Tiffany’s trust officer, Trish Marsh-Smith, has met with Tiffany and her aunt in a collaborative process to discuss and create a budget. “If anything additional comes up through the year, Tiffany sends her trust officer an email and then runs it past her aunt,” says Mesenbrink.  The trust funds have paid for Tiffany’s education, a home that has been modified to meet her needs, and a van equipped with a wheel chair lift, among other things. “The state nor insurance never would have paid for the lift and it provides me with a certain independence so I don’t have to take the bus,” says Tiffany.  Where Does The Money Come From?  An individual trust is funded in a number of ways. Regular life insurance and second-to-die life insurance, which pays out after the second parent dies, are popular. Other options include Social Security survivor or military benefits, property such as a family home and money from retirement funds. “You can fund it with anything you want but it best to fund it with a liquid asset,” says Doug Vogel, a special needs planner at the MetLife Center for Special Needs Planning and father of two daughters with learning disabilities and other special needs. The trust can also accept and invest inheritances.  Most of these trusts are carefully funded and managed so that money remains in them when the beneficiary dies. If the disabled individual’s condition improves to the point where the trust is no longer needed, the assets won’t be locked up. “The trust is like an empty cup and there is no disadvantage to setting it up for a worse case scenario,” says Vogel.  Family members who set up individual special needs trust also must choose a trustee. This is typically a thorny issue. “It generally hangs family members up,” says Vogel. He advises clients to give it careful consideration and try to find a trustee who has similar characteristics and values as the client. “Depending on the size of estate you’re leaving, you might also want to have a fiduciary or a co-trustee with a bank,” he says. To be sure, there is no cookie cutter approach.  Every situation and family dynamic is different, but a special needs trust can help protect the finances and quality of life for people as diverse as Tiffany, who has suffered a catastrophic injury, and Doug, who is raising children with special needs. Its flexibility makes it all the more useful.
Families that include disabled adults or children need to plan so that their loved ones finances are covered for a lifetime. That's where a well-designed trust can help.