Helping prepare your children for their financial futures is difficult enough in the best of circumstances.
When a child has special needs, the complications increase exponentially.
I have seen members of my own family struggle to make the right choices for their special-needs children. Those experiences were brought to mind recently when I received a letter from a reader named Helen, who has a grandchild with cerebral palsy.
"We started buying him savings bonds when he was six months old. He is now 11 years," Helen wrote. "We have been told that he needs a 'trust fund' set up.
"Could you please give me some information about such a fund? How, why and where can we take care of this?"
First, Helen, I'm glad you're thinking of your grandson's future. I'm sure he and his parents appreciate it.
For help with your specific questions, I contacted Allen Hughes, certified financial planner and chartered financial consultant with Deseret Mutual.
Allen says that what your grandchild requires is a "special needs trust," which can be a separate, stand-alone document or can be "carved out" inside a parent's trust.
"The reason you do that is because, if the child is eligible for state services, they cannot have, or they cannot own, more than a certain amount of assets or have control over a certain amount of cash flow," Allen says. "Often those amounts are so low that you can't do much for the child to give them the comforts of life."
With a special needs trust, your grandson never owns the assets, nor is he a trustee. He is only the beneficiary.
Allen says you should sit down with your grandson's parents right away and see if their estate is in order, making sure it includes a special needs trust.
"You're going to want to deal with an estate planning specialist, an attorney, who has experience with special needs," Allen says. "You'd rather have somebody who's done it before. ...
"Families that can afford it probably go to their own attorney, but if they are lower income or in a tougher situation, you can often get legal work done for almost nothing."
Once the special needs trust is set up, it doesn't matter how much is put into it.
"You set up the trust, and then put assets in it," Allen says. "So, with savings bonds, instead of buying them in the name of the child or parent, you buy them in the name of the trust, so the trust actually owns them."
Almost any kind of asset, from bank accounts to mutual funds, could be owned by the trust. The key, again, is to word the trust to make sure the special-needs child is not the owner or trustee.
"You want them to be eligible for receiving (Supplemental Security Income) payments (from the government)," Allen says. "Also, sometimes the state offers services with job coaching or other services that let (special-needs people) have as meaningful an experience as possible. Sometimes it even includes options for a group home or other housing.
"If they have too much money in the name of a special needs person, they don't get the services, so that's a tough deal. Otherwise, how does an individual family provide a sheltered work environment without being able to tap into a state program? It's pretty impossible."
So, Helen, it looks like your first step is to make sure a special needs trust is established. Then start contributing to it.
The opportunity to help your grandson enjoy some of life's pleasures while still participating in programs available through the government is worth the effort it may take to set up a trust.
I hope it all works out for you and your family. Please drop me a note to keep me updated on your progress, and I'll share that with readers, too.If you have a personal finance question, send it to email@example.com or to the Deseret News, P.O. Box 1257, Salt Lake City, UT 84110.