Question:
I have a Special Needs Trust for my son; however, I am not funding it at this time. I just have not been able to find the extra money in our budget to fund the special needs trust, especially after we save for our own retirement. What is the best way to fund a Special Needs Trust? — Sally
Answer:
Congratulations on having a special needs trust for your son! Having this trust is critical in providing for your son’s future.
Please know that you are not alone in your question. Many families come to us with the same concern. You are doing your very best paying the household bills, and saving some money for your own future retirement, but it does not seem that you can stretch the money any farther to begin saving for your son’s future. You may not have to…yet.
There is no “best way” to fund a special needs trust; however, there are several factors you should consider.
- First and foremost you need to know the amount your son will need to save. Without knowing the cost of your son’s support needs (if your son is young, then you will need the help of a professional who works with families all over the age spectrum to educate you on the items your child will need, and then to assess the cost of those items) you will never know how much to save.
- Once you understand the cost of your son’s lifetime support needs, you then need to consider the amount government benefits will provide to help you in paying those costs. This is how we make the government a financial partner in your son’s life.
- Understand taxes – This is an area where many mistakes are made. It is important to understand the tax structure of your special needs trust because it is different from your own. These differences will determine the assets that you want to use in funding your son’s trust. The tax rules will also determine the type of assets you are using in saving for your own retirement. The reason for this is because the assets you use in saving for your retirement will most likely be transferred to the special needs trust after you die. If we transfer the “incorrect” asset to your son’s special needs trust it could come with a tax sting of nearly 50% (2015 tax laws.)
By having a clear understanding of these three factors, you will be better able to determine what type of account to use in saving for your son’s future needs, when you should begin saving, and how much you will need to save. You will want to be careful in not waiting too long to take action on saving for your son’s future because time moves fast, and even a small amount each year will make a huge difference in providing for the life you want for your son.
For more information on how to prepare for the future, be sure to contact a financial advisor who specializes in serving families with special needs. A Special Needs Plan is driven by what they call Unleash L.I.F.E.™- L.I.F.E. meaning Lasting Independence For Everyone™. This is accomplished with education, action, and support in the creation, implementation, and continued monitoring of a specifically designed lifelong and integrated plan for your family: parents, caregivers, your loved one with special needs and their siblings.
6000 Fairview Road, Suite 400
Charlotte, NC 28210
704-557-9637
www.aspecialneedsplan.com
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This article was featured in Issue 36 – Managing School Stressors
