Attorney Thomas B. Burton is joined by Attorney Matthew Underwood, of Underwood Legal, LLC, and together they discuss a specific type of trust - The Special Needs Trust and it's association with Estate Planning. Attorney Burton and Attorney Underwood discuss and explain the nature of this trust, other types of similar trusts and its utilization in estate planning. This video is designed to inform, educate, and empower you, in order to put you in charge of your own estate planning.
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Attorney Burton: Welcome back to Ask the Attorneys!
Today on the show, we're going to be covering and talking about Special Needs Trust and once again, I'm happy to be joined by Attorney Matthew Underwood of Underwood Legal in Madison and Matt, thanks for coming back for this episode.
Attorney Matthew: Yeah, thanks for having me Tom.
Attorney Burton: So Matt, we've talked a lot about trusts in the past, revocable trust, irrevocable trusts, things like that but one trust I often find people wonder about is what we call a Special Needs Trust and some people have some idea of what special needs means but I wonder, if you'd start us off by talking about what a special needs trust does and what situation someone might consider one.
Attorney Matthew: Yeah, that's a great question Tom and I really like this topic because it's, it's one of the ways that we as estate planners can help our clients and so really what we, when we're looking at special needs or supplemental needs trust, we're typically talking about doing planning for beneficiaries that have some special needs. So for example, maybe, we have a beneficiary that has a disability and they can't work. So maybe, they're receiving government benefits for, could be for health care, it could be for income replacement things like that, so really what, what we're trying to do when we do special needs planning is we don't want to cause problems for these beneficiaries in the future. So for example, you know, maybe I have a child with, with special needs and if I were to pass away and I leave a large sum of money to that child, that will most likely jeopardize or disrupt the public benefits they're receiving because many of these government programs are based on need and so when our beneficiaries have too much money, they no longer qualify for these benefits. So that's where if I just leave money to these beneficiaries that might put them over the asset limit and that might force them to spend through that inheritance before they can re-qualify for these benefits and one of the goals that we often hear from our clients are from mom and dad that we're working with is you know we want the inheritance to enhance the lifestyle of our beneficiaries, we want them to live a you know, a better life and have another pool of resources to draw from rather than just relying on that those government benefits. So that's where we look to special needs trust.
So one option that clients have is what I sometimes call standalone special needs trust. So we can actually set up a trust today, during mom and dad's lifetime for example, for the benefit of their child with special needs, for example and mom and dad can start putting money into that that trust. So we're creating a trust today, we're starting to put money in that trust and so we can do that all before anybody passes away. So we're creating a separate trust and some of the advantages of doing that trust are, we can select our own trustees, so we can select the people to manage this trust. We get to pick those people, we get to pick what assets go into this trust. So whether it's investments, cash, maybe we're putting real estate in there, if our beneficiary with special needs lives in a, in a house or duplex condo, we can put the real estate in that trust as well and so, it's a nice thing that we could do today and we get to see how that trust operates while mom and dad are still living. So that would be one of the reasons to do a stand-alone special needs trust. Typically, we're looking at these types of trusts when clients have a little bit more money that they're leaving to beneficiaries, so just in round numbers, we're probably looking at people setting up these trusts for a $100,000 or more of assets because when we have smaller situations, these standalone trusts might not make sense given the cost involved is setting them up and the cost that the trustees might charge, depending on who we're naming as trustees. So that's where for smaller amounts, we oftentimes have another option, a pool trust or sometimes called the 'Wispact Trust'. So I know, you know a lot about that Tom, so let us know what that other option is there for people with maybe less resources but still want to set up this supplemental or special needs trust.
Attorney Burton: Yeah thanks Matt, I think you're right about the standalone, it's a good option and the more assets you're putting into it, the more it makes sense but for our viewers, there are costs involved, setting it up and then the administration. So for smaller amounts, where someone has those special needs and needs a smaller amount kept for them, what we often look at here in Wisconsin, is a non-profit organization called Wispact and they do a great job administering what we call pooled trust, what they do is they take lots of money from lots of people and administer it in a pool for the benefit of those people with special needs. So essentially you're setting up a sub account inside of the Wispact trust for your beneficiary.
So let's take an example of $40,000, someone passes away and leaves $40,000 to someone with special needs. We could set up a Wispact trust, that can be used to enhance that person's life but will not disqualify them from public benefits under state and federal law and Wispact has created a master trust agreement, specifically for these special needs trust. So that, it complies with state and federal law and you can use the benefits inside the trust, the money, the funds for a variety of things like a wheelchair, things that enhance their life, a walker, a wheelchair. It's easy to think about physical things, there's other things travel, education, it's a supplementary fund above and beyond whatever the government benefits might pay for. So like Matt said, with a first party special needs trust, they're the most flexible to hold things like he mentioned, if you had real estate or some other asset, with Wispact, it's often, you want to just fund it with cash type assets, so they can administer it and use it for the beneficiary's benefit and then Wispact has professionals trust company, who serves as the actual trustee. They hold the money but then you can name a friend or relative as the account administrator, if you will, if the disabled person themselves isn't able to do it, there can be a friend or relative who functions as that intermediary to help distribute the funds for the benefit of the person who has the trust.
So one thing I see that's good about Wispact is it's very user friendly and it's designed specifically for people, I would say below that six-figure amount, Matt. You can put more than that in there but it's designed where smaller amounts are okay and in fact, if it is a smaller amount, there is a program you can apply for, some of the fees for creating the trust as a grant through Wispact and you do need an attorney to set up this type of trust because they are very complicated and there is a lot of paperwork to set it up. So Wispact requires you to work with an attorney, so if you're in that situation, always work with an attorney to get the sub-trust set up for the benefit of the beneficiary but in my experience, they can be a very useful tool, especially Matt, in a case where someone hasn't planned ahead by for someone with special needs either a grandparent died and just left someone money and it turns out that person now has special needs at the time of death or there was just no planning at the top end, at all and in that situation, what I often see is if someone receives that large sum, let's say that $40,000 into their bank account, they likely will immediately be disqualified for government benefits for that month and at least in the case of Medicaid, they look at it every month. So in those cases the timing becomes crucial because you need to get that Wispact trust set up, generally all in the same month when they're going to receive the inheritance and I have done that for clients but it is a challenge to move that quickly. So if anyone out there is watching this video and you're thinking, "oh this applies to someone I know, so and so passed away and the estate is about to settle and pay out", or something like that, I encourage you to talk to an attorney before that payment hits the person with special needs bank account because there may be options you could set up before the estate is finalized and Matt, I think that leads us to maybe our third type of special needs trust and one, I think we often overlook but I know in my, when I set up a revocable trust plan for a married couple, for example, I include language in there about setting up a special needs trust, if one of the beneficiaries later needs special needs. So I wonder if you could talk about that, how we can cover that within our broader trust planning.
Attorney Matthew: Right and I think, this is where having a comprehensive estate planning attorney helping you out as you're setting up your trust is really important because one of the things that we as estate planners are doing, is we're looking at your situation and your goals that that you have today while we're setting your plan up but we're also looking into the future and we're trying to anticipate any issues that might arise because if these different events happen, we want to make sure that your estate plan, your trust still covers those situations. So as you have mentioned, you know, what happens if we, if parents, mom and dad, they set up the trust for their children and that trust is designed to pay out the trust assets to the children when mom and dad pass away, you know that'll, that could work just fine but what if, one of those children later on, after we set up this trust, has a condition maybe or a disability, where all of a sudden, they rely on public benefits or government benefits for health care for living expenses, well, now that trust that we set up that was just going to pay assets to those beneficiaries, isn't optimal. So that would potentially cause some problems for that beneficiary, who's now on these government programs. So and we do this, just like your office does Tom but we have backup or contingent supplemental needs or special needs trust in place. So that, if that situation arises in the future, we can have a special needs trust set up for that beneficiary and instead of paying those assets directly to that beneficiary, causing them to lose access to benefits and forcing them to spend through the inheritance, we can have that money go into that special needs trust and that beneficiary will then be able to retain that inheritance and retain their government benefits and as that beneficiary has some extra needs, you mentioned travel, education, healthcare, dentures, glasses, hearing aids whatever it is, they have that pool of resources, that mom and dad left them, that they can draw from but they still have those programs to pay for, those other needs.
So it's easy for us, as estate planners to include language in the trust like that but, and mom and dad, the parents, our clients might think, "well our kids don't need that" but you know who knows what's going to happen in the future. It's better for us to put that planning in place now and it's there, if we ever need to use it in the future.
So again, this is where having a really good estate planning attorney working for you is crucial because we do see a lot of plans that other offices create and that's oftentimes, something that's overlooked or not included, so again, we want to make sure that we're planning for our clients today but also planning for clients in the future, depending on what these situations might come up.
Attorney Burton: I think that's right Matt, a good plan is holistic and I tell my clients, I try to build in as many options as you can, to cover a variety of situations and just like you said, I have a question on my questionnaire that says, 'Does anyone have special needs?', any of your beneficiaries and often the answer on the questionnaire is no, not currently, when the client comes into our office, it's often they don't have someone but what I see happening is between the time the client met with the attorney and whenever they die, which can be a long time, that's when someone, they didn't even know about at the time, develop those special needs, due to health issues or other unforeseeable things and so, having this built in can really provide peace of mind and I feel you know, in my own practice, we're covering so much in these meetings, when we're talking about probate avoidance and planning and incapacity and all this stuff but this planning for special needs for the beneficiaries is really something that you can do, that's a gift to them.
And I think just making people aware of it, it's another way you can have peace of mind through that comprehensive planning. So thank you very much for covering that in detail.
Attorney Matthew: No, absolutely. This is a really important topic and it's something, it's that's a gift that we can give to our beneficiaries and, and we want to do the best planning and make sure that whoever is setting up their plan is, is doing right on their beneficiaries and that's where working with someone like you Tom, or myself, estate planners to help with that process, make sure that we set up everything properly.
Attorney Burton: Well, to everyone, thanks for joining us and we'll see you next time.
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