FINANCIAL FOCUS THE PROS AND CONS OF FUNDING A THIRD-PARTY SPECIAL NEEDS TRUST

By Ryan F. Platt, MBA, ChFC, ChSNC, CFBS

I AM 80 YEARS OLD AND IN GOOD HEALTH. WHAT ARE THE PROS AND CONS OF FUNDING A THIRD-PARTY SPECIAL NEEDS TRUST FOR MY 45-YEAR-OLD DISABLED SON AT THIS TIME VS. FUNDING THE TRUST AT MY DEATH?

The main advantage of funding your son’s Third-Party Special Needs Trust while you are alive is for continuity of care. If you take the time to create the trust as a stand-alone trust that exists today, then you can acquire the necessary tax identification number (called EIN) from the IRS, and set up an account in the name of the trust. Once the account is established, you can fund your son’s trust with a small amount of money. In this way, your son’s trust is open, and you do not leave that responsibility to the people who will come after you (when you die) to handle all the steps necessary to open the account and then fund it. It also means the next caregivers will have access to some money to continue to provide for your son’s needs while your estate is being settled.

The disadvantage to funding your son’s trust while you are alive is that the amount of money you place in the trust is only usable for your son’s benefit. This means the money you place in his Special Needs Trust is not allowed to be used for your benefit or to pay for any of your expenses. The money in the trust can only be used to pay for your son’s needs. A second disadvantage to funding the trust with a large amount of money before you die is that the trust may pay a higher tax rate than you do as an individual. Trusts typically pay higher taxes than individuals; however, this is dependent on the individual’s tax rate.

Instead of thinking about funding your son’s trust as an “either-or,” think about it as an “and.” Consider funding your son’s trust with a small amount of money while you are still alive, so it is active. In this way, setting up your son’s trust will be one less thing for the next people to do when you die. They can simply focus on ensuring the remaining assets you want to use to fund your son’s trust are allocated properly and are deposited in the trust account. The next caregivers will also have access to the money in the trust to continue to pay for your son’s needs without having to wait for your estate to settle. This means his care needs will continue to be met without being put on hold.

Setting up your son’s Special Needs Trust and funding it with a small amount of money today and then having the majority of the funding of the trust occur at your death blends the best of both worlds. This technique will:

• Allow your next caregivers to have access to some money to continue to pay for your son’s needs • Remove one more step for the next caregivers to worry about (i.e., setting up the trust) • Keep the majority of your money in your name, paying individual tax rates versus a possible larger tax liability that may exist if that larger amount of money resides in a

Special Needs Trust

Please contact us with any other questions you may have.

Contact a financial advisor who specializes in serving families with special needs for more information on how to prepare for the future. The team at A Special Needs Plan is driven by their purpose of leading families to independence through an ongoing, multi-generational plan. We are passionate about families confidently moving forward.

Ryan F. Platt, MBA, ChFC, ChSNC, CFBS, is a registered representative of and offers securities, investment advisory, and financial planning through MML Investors Services, LLC, Member SIPC. A Special Needs Plan isn’t a subsidiary or an affiliate of MML Investors Services, LLC, or its affiliated companies. This article is not a recommendation or endorsement of any products. Website: http://www.aspecialneedsplan.com Phone: 704-326-7910 Location: 101 N. McDowell Street, Suite 120 Charlotte, NC 282