Ideal Amount To Set Aside For A Special Needs Trust

[Theophrastus Bombastus]

Solo parent here: I have an adult child approaching 30 years of age with a severe disability who will never be capable of employment or living independently and functions (on good days) at the level of a 3-4 year old, but most days function's at the level of an energetic 2 year old.

Child was placed into a special needs group home several years ago but I discovered the group home staff abused, discriminated and neglected my child (FYI - the authorities were not interested in any real investigation of said group home or employees).

Child is on Social Security disability and is also Medicaid eligible (based on their own finances as an adult).

I am very leery of sending my child to another group home given my experience and have been primary caretaker/caregiver - but fully realize I don't have another 50 years left.

I hopefully have adequate financial resources to fund a special needs trust, but also have other children and don't want to discriminate against them or put so much into a special needs trust that my special child loses benefits or, conversely, the trust is taxed at onerous levels. Also have an ABLE trust.

I'm looking at having the SNT last 50 years, knowing all too well the inflationary and return risks, compounded by paying for administration of said trust and associated legal fees, taxes, etc.

Aside from current Social Security payment, the SNT should fund about $7000 to $8000 per month (in current dollars adjusted for inflation) to cover a decent and safe residential setting with a good quality of living for my special child hopefully until 2073, maybe beyond. After my death, child's benefit will increase based on my SS benefit (but am not counting that toward the monthly amount needed from the SNT.

Has anyone been in a similar situation? My experience with 'experts' in this field has regrettably been quite negative with avaricious charlatans out there preying on desperate parents in desperate situations. Hidden fee's encountered have been usurious.

Initially, when my spouse was alive, we had planned on 6 figures given our child's Medicaid and Social Security. After my spouse died and my child was mistreated, I realized that 7 figures is probably closer to adequate funding. Remember that I want to leave some for my other kids. My net worth is somewhere in the mid-7 figure range after my spouse and I worked hard for a full lifetime. My child's life expectancy is another 50 years, though maybe less due to limitations from their disability.

Any and all thoughts or experiences are welcome.

I might even consider relocation, either to another state or expatriation to another country, if needed (realizing any Medicaid benefits would disappear).

 

[OldShooter]

Are you sure you have found all the possible public support? There is certainly more than Social Security and Medicaid available. These would be means-tested programs and the purpose of an SNT is to provide support to the beneficiary without jeopardizing money available from means-tested programs. IMO your first step should be to understand and go after every scrap of public support that is available. Utilize specialist attorneys, support groups, social workers at the local and state level, etc. There are also nonprofits who specialize in being trustees. Maybe there is information to be found there.

FWIW our special needs grandson is more capable that your child, but DW who retired as an SVP in megabank Trust and Investments and our estate attorney believe that an SNT for our 17 YO grand should be adequately funded at $200-300K

 

[RetiredHappy]

We are not exactly in the same situation in that I do have a high functioning ASD offspring. He is my only child, and while he has 2 Bachelors degrees from state universities, he has difficulty in getting meaningful employment which utilizes his academic abilities. He works on and off in minimum wage blue collar work. He does not qualify for any welfare benefits so he will be solely dependent on his inheritance. We plan to leave him low 7 figures and to tap mainly into dividends and interest in taxable accounts, plus 10-yr RMD when we both pass. He already owns a small home outright.

 

[Theophrastus Bombastus]

Are you sure you have found all the possible public support? There is certainly more than Social Security and Medicaid available. These would be means-tested programs and the purpose of an SNT is to provide support to the beneficiary without jeopardizing money available from means-tested programs. IMO your first step should be to understand and go after every scrap of public support that is available. Utilize specialist attorneys, support groups, social workers at the local and state level, etc. There are also nonprofits who specialize in being trustees. Maybe there is information to be found there.

FWIW our special needs grandson is more capable that your child, but DW who retired as an SVP in megabank Trust and Investments and our estate attorney believe that an SNT for our 17 YO grand should be adequately funded at $200-300K

My late spouse scoured all available assistance and found whatever was out there.

The group home was paid in full by SS and Medicaid, as was an ADT program, medical and dental care and most medication.

Unfortunately, I suspect that the group home wasn't interested in keeping my child on as they had another 'more lucrative' and cherrypicked case to fill the bed with less work - hence the neglect.

They have no idea what they lost, since there was a significant financial bequest that would have gone their way on my death.

That has subsequently been removed given their behavior. Even if things were to change, I would not want my child going there ever again.

 

[ERD50]

Looking at this generically, a portfolio to safely last 50 years should have a conservative inflation adjusted withdrawal rate. I'd estimate at less than 3%.

As has been discussed in other recent threads, safest asset allocation includes a fair % of equities, say 60/40 in total market funds. Draw 2.x% a year, adjust for inflation, and use that to rebalance towards 60/40 if needed. Draw less if expenses are lower than anticipated.

So if you plan on needing $100K/year, that's over $3.3M to fund it. A trust will incur other expenses, so add that to the mix.

-ERD50

 

[MarieIG]

Why can the trust not last for the life of your child?

Also - you may want to consider percentages, i.e. one third or half for special needs child/half for the others.

 

[Theophrastus Bombastus]

Agree with less than 3% withdrawal rate (inclusive of the myriad of fee's incurred with a trust).

MarieIG, I hope it does last for my child's lifetime, but am skeptical because of the way inflation and the overall economy has been these last couple of years.

I'm much more conservative than wanting 60% in equities. I'm gravitating more toward 35% equities, 60% bonds and 5% cash (to cover expenses that pop up for a two year cushion).

If I were to consider a higher equity allocation, I would want a bigger cash cushion to cover potential expenses over a 4-5 year window in order to avoid cashing out when the market has the flu. That said, I highly doubt I would go above 45-50% tops in equities - so I might consider an allocation that ranges from 45% equities, 10% cash, 45% bonds to one that is 50% equities, 15% cash and 35% bonds.

It may be more beneficial to have a higher equity allocation for improved longevity risk and decrease the mandatory distributions from bonds - which may trigger the high trust tax rates.

 

[ERD50]

Agree with less than 3% withdrawal rate (inclusive of the myriad of fee's incurred with a trust).

MarieIG, I hope it does last for my child's lifetime, but am skeptical because of the way inflation and the overall economy has been these last couple of years.

I'm much more conservative than wanting 60% in equities. I'm gravitating more toward 35% equities, 60% bonds and 5% cash (to cover expenses that pop up for a two year cushion).

If I were to consider a higher equity allocation, I would want a bigger cash cushion to cover potential expenses over a 4-5 year window in order to avoid cashing out when the market has the flu. That said, I highly doubt I would go above 45-50% tops in equities - so I might consider an allocation that ranges from 45% equities, 10% cash, 45% bonds to one that is 50% equities, 15% cash and 35% bonds.

It may be more beneficial to have a higher equity allocation for improved longevity risk and decrease the mandatory distributions from bonds - which may trigger the high trust tax rates.

35% equities is probably fine, below that, historical portfolio survival drops.

I wouldn't worry too much about a cash buffer. When you get below 3% WR, the dividends from equities and fixed will be close to that, so you really don't need much buffer - just some years of the delta between your WR and expected divs/interest.


-ERD50

 

[MichaelB]

35% equities is probably fine, below that, historical portfolio survival drops.

I wouldn't worry too much about a cash buffer. When you get below 3% WR, the dividends from equities and fixed will be close to that, so you really don't need much buffer - just some years of the delta between your WR and expected divs/interest.


-ERD50

I agree with ERD. The objective here is not total return, it’s portfolio survivability. I recall an allocation somewhere between 35%-40% was the minimum needed. Less than that the survival tailed off pretty quickly, and above that the total return increases but so does the volatility, so the portfolio survival increases but not substantially.

The one concern I would have is the cost of third party management of the trust. It will subtract from the portfolio performance and lower the survival rate. Not sure how to deal with this. Either find a low cost trust management or increase the equity allocation to around 45% to offset additional cost. Or reduce the withdrawal rate.

 

[youbet]

The one concern I would have is the cost of third party management of the trust.

Yep. Management of special needs trusts can be expensive. And you don't want to leave the responsibility of that task in the hands of a less than optimum situation. I'm working on a similar situation for a grandchild. We can afford a low seven figure contribution to a trust, but that's the easy part. Having it effectively managed to optimize benefits to our special needs grandchild for decades after our passing is tough and costly.

OP, don't make the mistake of using withdrawal percentages normally associated with FIRE portfolios in these circumstances. Your expense ratio will be much higher. Since you're talking about a significant bux contribution on your part, I'd consider professional help with the situation.

I'll throw a dart at the board and guess you'll wind up spending 3 mil +initial setup expenses to meet your objectives.

 

[Sunset]

Sad that you had a bad experience with a group home.
However, the reality is there are many good ones out there.
I worked in the field for 10 years and saw very often the problems parents ended up experiencing when they took care of their child until suddenly they couldn't.

It was much better when parents placed their child in a proper group home and could visit over the years to ensure everything was fine, or to work out issues, or to work on and plan their child's graduation to more independent living (I recognize your child probably won't be living outside of a group home, and not everyone does).

Hopefully there is a parents group that have children like yours that you can interact with and pick up suggestions.

Are your other children interested, willing to at least oversee/administer the trust ? I don't know if that is a good thing or not, but I do know from past family history that an uninterested trust administrator often didn't act in my Aunt's interest, and the family had to fight a lot for the administrator to pay for things.

 

[SecondAttempt]

Solo parent here: I have an adult child approaching 30 years of age with a severe disability who will never be capable of employment or living independently and functions (on good days) at the level of a 3-4 year old, but most days function's at the level of an energetic 2 year old.

Child was placed into a special needs group home several years ago but I discovered the group home staff abused, discriminated and neglected my child (FYI - the authorities were not interested in any real investigation of said group home or employees).

Child is on Social Security disability and is also Medicaid eligible (based on their own finances as an adult).

I am very leery of sending my child to another group home given my experience and have been primary caretaker/caregiver - but fully realize I don't have another 50 years left.

I hopefully have adequate financial resources to fund a special needs trust, but also have other children and don't want to discriminate against them or put so much into a special needs trust that my special child loses benefits or, conversely, the trust is taxed at onerous levels. Also have an ABLE trust.

I'm looking at having the SNT last 50 years, knowing all too well the inflationary and return risks, compounded by paying for administration of said trust and associated legal fees, taxes, etc.

Aside from current Social Security payment, the SNT should fund about $7000 to $8000 per month (in current dollars adjusted for inflation) to cover a decent and safe residential setting with a good quality of living for my special child hopefully until 2073, maybe beyond. After my death, child's benefit will increase based on my SS benefit (but am not counting that toward the monthly amount needed from the SNT.

Has anyone been in a similar situation? My experience with 'experts' in this field has regrettably been quite negative with avaricious charlatans out there preying on desperate parents in desperate situations. Hidden fee's encountered have been usurious.

Initially, when my spouse was alive, we had planned on 6 figures given our child's Medicaid and Social Security. After my spouse died and my child was mistreated, I realized that 7 figures is probably closer to adequate funding. Remember that I want to leave some for my other kids. My net worth is somewhere in the mid-7 figure range after my spouse and I worked hard for a full lifetime. My child's life expectancy is another 50 years, though maybe less due to limitations from their disability.

Any and all thoughts or experiences are welcome.

I might even consider relocation, either to another state or expatriation to another country, if needed (realizing any Medicaid benefits would disappear).

I can comment on one aspect of your question. I have a brother who is also special needs. While my emotions are mixed regarding how that has affected my life, Any expectations that planning for his long term care at the expense of any inheritance I may get would not offend me. I am pretty successful and do not need an inheritance but I can't imagine a person being offended by a parent disenheriting him/her because of a disabled sibling. That just seems cruel.

 

[JBTX]

We have an ASD young adult son who will likely need some help for the rest of his life. He currently gets SSI/Medicaid. We do not currently have an SNT - but do have SNTs set up upon our deaths. I currently don’t see the upside of having an SNT while he is alive. If you leave the income in the trust it is taxed at higher rates, and capital gains do not get a step up.

We do have an ABLE account to help navigate SSI parameters.

Perhaps there are situations where it could make sense while we are alive but I’m not aware of them. The goal would be to leave him something over $1 million upon our deaths.

 

[rwdflynavy]

We have an adult son with Autism who lives with us. We have a SNT for him that we have already funded partially with inheritance and our own funds. The bulk of it will be funded upon our death.

The same Medicaid Waiver that paid for a group home should be able to fund his placement with a family that specializes in caring for disabled. We have friends at church who house two adults with disabilities and this seems to be a much better setup than the group home plan.

Our son is still on the waitlist as it is needs based in Virginia and we are still in good health and able to care for him.

Might be worth looking into it. I'd contact your local social services office and investigate different placement options than a group home.

 

[Theophrastus Bombastus]

To anyone not aware of this nightmare, $100 MILLION was essentially stolen recently by the founder of the Center for Special Needs Trust Administration in Florida who was accused of taking money for over a decade from vulnerable people’s trusts (many whose parents had died) and not repaying it.

Many special needs individuals lost EVERYTHING and are penniless. Even worse, the loved ones who cared are gone and these people are utterly abandoned.

What hits hard is that my family looked at this particular company many years ago - but I felt ill at ease.

 

[pb4uski]

Looking at this generically, a portfolio to safely last 50 years should have a conservative inflation adjusted withdrawal rate. I'd estimate at less than 3%.

As has been discussed in other recent threads, safest asset allocation includes a fair % of equities, say 60/40 in total market funds. Draw 2.x% a year, adjust for inflation, and use that to rebalance towards 60/40 if needed. Draw less if expenses are lower than anticipated.

So if you plan on needing $100K/year, that's over $3.3M to fund it. A trust will incur other expenses, so add that to the mix.

-ERD50

That sounds about right. A TIPS ladder generating $90k a year of inflation adjusted income for 30 years would require an invetment of $2.7 million.

https://www.tipsladder.com/build?incomeRequirementKind=Avg&firstYear=2025&income=90000&yearCount=30&bondChoiceForGap=NearestBond&bondChoiceWithinYear=BestYield