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How much should go into your Special Needs Trust?

One of the most difficult challenges in special needs planning is figuring out how much money it is going to cost to provide for the child both while the parents are alive, and after the parents pass. All too often, it seems, I meet with someone who has set up a special needs trust (a critical piece of the overall planning, of course) but has given little or no thought to how much should fund that trust someday and which assets will be the best to use.

As parents know, a child with special needs can generate multiple expenses. Exactly how much will depend on the needs and lifestyle of the family and the child’s capabilities. The biggest unknown I find is the cost of housing. If the plan is for the child to live in a private group home-type situation, there are a couple of options. Some involve the purchase of a condo unit, which could range from $200,000 to $300,000, give or take. In addition to this, there is a monthly maintenance fee of roughly $2,000 a month that covers food, utilities, and staffing. In addition, many families want to build into the budget eating out once a week or so, electronics (a new iPad every few years for example), a gym membership, etc. (See budget sheet below for a full budget example.)

When the parents pass away, this budget is naturally going to be bigger because we now need to monetize the things the parents did. For example, “care coordination” and advocacy are huge undertakings that parents perform. Of course, no one will be able to replace the parents fully, but we can do our best to make sure the essential tasks are covered. Typically the trust isn’t funded until the parents’ passing, which means that the trust now needs to file a tax return each year and pay taxes (at higher trust levels). There are also legal and trust administration expenses to consider. (Even if a family member is the sole trustee, it may be wise for the trustee to consult an attorney each year to make sure nothing is done that could jeopardize benefits.)

Fortunately, public benefits can usually offset many of the above-mentioned costs. For example, the child may be eligible for Supplemental Security Income (SSI), as well as a Section 8 housing voucher and SNAP food assistance. When the parents retire, SSI is typically replaced with Social Security Disability Insurance (SSDI) , which is one-half the parent’s payment. When the parent passes away, this payment becomes three-quarters of that amount. Adult Family/Foster Care may be available as well, depending on the group housing situation. It’s also possible that the child is working and bringing in additional income (minus whatever benefits may be offset by this income).

In the budget example below, we are trying to determine the lump sum needed to fund the trust of a fictitious child, “Sarah,” upon her parents’ passing. Once we calculate the gap each year between income and expenses (adjusting for future inflation), we pick a hypothetical life expectancy for the child. In this example, we have the mother, “Christine,” passing away after her husband, at age 90 (when Sarah is 60), and Sarah living 20 years beyond that. Assuming the money grows at a net 6 percent and there is 1.9 percent inflation, Sarah’s family will need to make sure that there is at least $1,074,113 left in the trust upon both parents’ passing.

This is just one example, and there are countless other possible scenarios. For example, if the child needed a higher level of care, such as 24/7 supervision, the housing cost could be closer to $60,000 a year for around-the-clock staffing, plus the cost of an apartment or condo that is large enough to house the care staff.

In conclusion, the takeaway is that it is essential to do a complete analysis of the future costs to provide for a child with special needs so that the parents can begin saving and making adjustments in their planning today. This analysis isn’t a perfect science and is a moving target at times, but ideally it can help guide families and their advisors towards creating a thoughtful plan that will leave the right amount to a child’s special needs trust.

Caleb Harty, CFP®, is the Principal of Harty Financial in North Reading, Massachusetts. Harty specializes in helping parents plan financially for their children with special needs as well as retirement planning. He can be reached at (978) 972-5961 or

Note: This article is for informational purposes only. Neither Caleb Harty nor Harty Financial provides tax or legal advice. Please contact your attorney or accountant and rely on their independent research and advice for these matters. Also, public benefits and other costs are best faith estimates and can vary. For exact amounts contact your local SSI office and other local social services agencies.

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