How
Much is Required to Fund a Special Needs Trust
by
Herbert D. Hinkle, Esq. and Ira Fingles, Esq.
Herbert D. Hinkle
Law Office
2651 Main Street
Lawrenceville, New Jersey 08648
(609) 896-4200 or (215) 860-2100
In many previous columns, we have discussed special needs trusts (“SNT”).
A special needs trust is an instrument to hold assets for the benefit
of a person with a disability in ways that do not interfere with eligibility
for benefits or make the asset vulnerable to government claims for
recoupment. A SNT can be part of a will or a free-standing instrument.
For a variety of reasons, it should never be part of a will.
We use the term “special needs trust” reluctantly, because
many SNTs that we have reviewed are inadequate.
Today,
we would like to focus on the question of how much should be placed
into trust. First, generally there is no need to fund a trust
while the parents are living, although tax considerations and the
possible incapacity of the parents need to be taken into account.
Once funded, the
SNT can be used to supplement the lifestyle of the person with a disability,
purchase an automobile and housing, if realistic, and offset all expenses
that family might incur in traveling and visiting that person, inspecting
living arrangements, arranging for people to check on the person with
a disability, and similar activities.
While it is not
possible to be exact, here are guidelines to consider in determining
the level of funding necessary.
Less funding is
necessary for a person with very severe disabilities who is already
being adequately served in an adult living arrangement. In an ideal
world, a minimum of $300,000 should be sufficient. Not only
will this cover the above expenditures but it will enable the trustee
to fund services in the event of a short term disruption.
More is needed
when the disability is comparatively mild. For example, a person
might be able to work, but not earn at the level of a non-disabled
sibling, and not qualify for services. Therefore, funds should
be available to purchase housing, supervision, and training, along
with the type of items described above.
Here, we suggest
a minimum of $500,000.
A gray area exists for the person with a more severe disability who
is not living in an appropriate adult program. In this case,
we recommend using the higher figure until the person is placed.
How can a family
fund this arrangement? First, remember that these numbers are guidelines
and are beyond the reach of many families. This does not mean
that a SNT would not be helpful. Life insurance on the life
on one or both parents is a comparatively inexpensive way to ensure
the availability of assets. Also remember that the trust is
funded normally at the death of both parents with a portion of the
parents’ estate. There is no down side to over-funding
a SNT because it can provide for the distribution to other family
members or charity, either during the lifetime of a SNT or at the
death of the child with a disability.
Copyright 2002
H.D. Hinkle. All rights reserved.
Mr. Hinkle maintains
a multi-state law practice with offices in Lawrenceville, Florham
Park, and Marlton, NJ, and Yardley, Pa. Mr. Hinkle and his colleagues
Ira Fingles, and Paul Prior lecture and write frequently on topics
of law, aging, and disability, and are available
to speak to groups in New Jersey and Pennsylvania
at no charge. Call (609) 896-4200.
