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How much should I put into my childs special needs trust?


How much should I put into my child’s special needs trust?

Stephen W. Dale, Esq., LL.M.


This is a question that is almost impossible to answer with precision, so it is important to know all of the variables. To illustrate the challenge, imagine for a moment that you have a 17 year-old daughter named Kathy who has a severe disability and will need assistance for the rest of her life.  According to current calculations, Kathy’s life-span is likely to be 87 years or greater. The challenge you must address through your estate plan will be how to provide for Kathy over the next 70 years, encompassing many life events such as transitioning into adulthood and on through middle age and into old age.  We will also need to take into account the effect the eventual death of her parents will have. It is especially difficult in cases where the parents have lived with their disabled child for most of that child’s life.  Their passing will often require changes in services.

Creating a special needs trust that focuses only on protecting Kathy’s eligibility for government assistance is not going to fulfill these many challenges. It is doubtful that the benefit programs we know today such as SSI and Medi-Cal will still be in existence in 20, 30, and certainly not 70 years. It is much more likely that other programs will be in place, programs will likely operate very differently. It is absolutely essential that your plan for Kathy has the flexibility to adjust as the programs and systems that provide for Kathy evolve.

California currently has some of the best residential programs in the country for people with developmental disabilities. If that system is funded and administered appropriately for the remainder of her life, Kathy’s other needs may be relatively small. If there are no suitable placements or benefit programs available that will assist in residential in-support services, then to privately pay for housing costs could be astronomical.

So, there are two figures that this family must keep in mind:


1. What is the amount needed if Kathy will be able to utilize government support for quality residential programs and services; and

2. What is the amount needed based on the assumption that there very well could be fewer, if any acceptable services. Of course, these figures can only be estimates at this point.

3. As Kathy gets older the family’s ability to identify actual costs will become more precise, hence the need for adaptability in the plan.

Attempting to achieve equality with children

An issue that families often find challenging is how to split their estate among their children when one child is disabled and other children are not. This subject alone could take an entire book. Parents often struggle with their attempts to be fair to all of their children. The fact is, children are not created equal, whether they are disabled are not.  In many cases it might be more prudent, at least initially, to dedicate more of the estate to the disabled child’s special needs trust than the non-disabled child’s share. The children who are not disabled presumably would have more earning capacity than their disabled sibling especially if the parents contribute to their education. In most cases the disabled child will have more needs than the non-disabled child. This is nothing new to parents of disabled children.  They deal with this juggling act their entire lifetime. In many instances it is very difficult to achieve this goal, especially when the family has limited resources.

Parents must look at the equities and make a pragmatic decision. Of course, this is easier said than done, but parents must try to avoid making decisions based on guilt. A common approach is to purchase life insurance to make up the difference or fill the gaps, which can be a short term or a long term solution depending on the situation, and the type of insurance purchased, whether it be “perm,” or “term.”

What if I overfund my child’s Special Needs Trust?

Overfunding a special needs trust can be as problematic as underfunding the trust. There are so many variables, especially for a young child, that in many ways no matter what you do, there is an element of guess work involved. Assume that Kathy is living in a residential program that provides for virtually all of her needs. Assume further please that as long as these services continue oversight for her needs and quality of life will likely amount to several hundred thousand dollars over her 70 year lifetime. But, if these services were no longer available she will need several million dollars in her trust for her needs. You need to recognize the likelihood of losing some of these programs is fairly high in today’s economy so you may decide to provide for worst case scenario by purchasing a 2 million dollar life insurance policy to fund the trust upon your death.

What if you pass away when Kathy is 25 and the life insurance death benefit is paid into Kathy’s trust. If her services continue uninterrupted the funds will likely be invested and continue to grow they could become greater than her needs. It makes little sense then to have all of those funds tied up until she passes away, especially if the excess funds could be better used by a sibling or disability organization that you support.

We can draft the trust which to allow for a periodic assessment to be performed by an independent professional such as a care manager or life care planner to determine the likely needs for Kathy within a set time period.  The management team can then utilize those projections in planning for Kathy’s financial needs.  Then they can distribute any excess to the nondisabled beneficiaries.

Sample Trust Language

It is our intention that we provide adequate funds to ensure that Kathy has the necessary resources available for her lifetime. It is also our intention that if this trust agreement has excess resources beyond her likely needs, those excess resources be distributed to the remainder beneficiaries.

Upon Kathy reaching the age of 50, our Trustee may authorize, in its sole and absolute discretion, an assessment be prepared to determine whether the amount of funds available for Kathy’s care will be adequate to maintain her quality of life in accordance with our objectives as provided in Article 2 of this agreement and any letter of intent that we have provided. The Trustee is authorized to have an assessment done every five years by a qualified life care planner, professional care manager, or equivalent professional experienced in assessing the needs of persons with disabilities similar to Kathy. The assessment shall take into considerations;

  • Her actuarial life;    
  • Her residential and support needs;
  • The likelihood of the continuation of government benefits and other supports that she may be receiving currently or she may be entitled to in the future;
  • Changes in her health needs and the likelihood of those needs being met through public benefits, insurance, or trust assets;
  • Economic factors including the likelihood of inflation or deflation;
  • Any other relevant factors that may be relevant in maintaining her quality of life.

The assessment shall be given to the Trust Protector and to Kathy’s conservator or guardian, if one is serving, for their review and comment.

In the event that the assessment identifies that there is a likely excess in funds, and the Trustee and Trust Protector are in agreement, then the Trustee may authorize some or all of the identified excess to be distributed to the remainder beneficiaries of this agreement.


It’s All about Sustainable Systems

Today’s community living system is based on the deinstitutionalization movement that was started over half a century ago that promised shutting down large state institutions in favor of well-funded community based programs. Despite incredible gains over the past 50 years current systems serving persons with disabilities and their families are poorly funded and their futures unclear and certainly likely to experience significant changes. The problem that many advocates are struggling with is the sustainability of these programs.

It is appropriate to think of the special needs trust as a private social service system that provides families with peace of mind that will ensure that their disabled loved ones will be able to maintain more than just existence, and instead focus on quality of life.

Essentially there is much prognostication about future scenarios that we must engage in with the parents as our clients when planning. In most cases none of us will know if the right decisions were made for decades if at all because many of us may not even be alive to see what actually does transpire as a client like Kathy ages. We must consider all of these variables and do our best with what we know now.