Tax time!

It’s tax time in the United States and both individuals and CPA’s are scrambling to hit the upcoming April 17 deadline for filing personal income taxes. Many times people realize all too late that not planning during the previous year causes them to lose out on possible deductions costing them money in the long run. If you have a child with a disability not planning can pose more problems then just losing some deductions.

For the non-planners and planners a like, one item not usually discussed at this time of the year but should be is estate planning. I know, I said it, “estate planning.” Don’t think that this is only for “old” or “rich” people deciding on how to parcel up their estate when they die and/or trying to avoid paying taxes. While estate planning can be this, it is so much more. AND if you have a child, relative, or even a friend who is a person living with a disability this planning becomes more pertinent and urgent no matter what your age.

To look at why planning is so important let’s look at some numbers. There are 54 million Americans, or 19 percent of the population aged 5 or older who are living with a disability, according to 2010 Census survey data. 11 million of these people aged 6 and older need personal assistance with everyday activities and tasks such as getting around inside their home, taking a bath or showering, preparing meals and performing light housework. The breakdown by age groups shows the following:

• 5 percent of children 5 to 17 have disabilities.
• 10 percent of people 18 to 64 have disabilities.
• 38 percent of adults 65 and older have disabilities.

For those who have a child with a disability or anyone wanting to will any part of their estate to a grandchild, niece, nephew, or friend a special needs trust (SNT) is just the vehicle. There are two main types of SNT’s; a private SNT set up by an attorney naming usually a family member as the designated trustee, with the money managed by a financial institution or financial service company, and a pooled special needs trust set up and run by a non-profit that pools all of the money invested, holds the master trust, and oversees the financial management of the money. Although the money is pooled for investment and management purposes, a separate account is held for each beneficiary. Pooled trusts usually always also offer specialized and individualized care management plans when needed by the beneficiary. Special Needs trusts are also known in the United States as “Supplemental Needs Trusts.” Or “D4C Trusts” after the tax code that created them. One example of a non-profit pooled SNT is The Special Needs Trust Network.

While government programs such as Social Security Disability Insurance (SSDI), Supplemental Security Insurance (SSI), Medicaid, and Medicare are helpful to people with disabilities they cannot provide everything and they come with many regulations to qualify and to stay on the programs. Trying to be the “nice” or “caring” relative and giving money to a disabled relative as an inheritance without planning can cause more problems for that friend/relative including possibly having them lose their benefits. SNT’s are also used in instances such as personal injury litigation, back payments, windfalls, or when personal needs funds have reached their limit. Special Needs Trusts are governed by rules that vary by state to state and therefore can be complicated. You should seek qualified and experienced legal advice from an elder law and estate-planning attorney as part of your planning. A good place to start is the website of the National Academy of Elder Care Attorneys (NAELA)

But if you have a family member, or friend with a disability the time to start is now. In future blogs I’ll discuss each type of SNT and their advantages and disadvantages but for now just get through tax time! Whether you owe the government or will be receiving a refund you owe it to yourself and the ones you love to start planning!