How to Approach Person-Centered Financial Planning for SNT Beneficiaries
Note: this article is not intended to provide investment, legal, tax, or accounting advice. Before making decisions with investing, legal, tax, or accounting ramiﬁcations, you should consult appropriate professionals for advice that is speciﬁc to your situation.
When helping an individual with disabilities plan for their future, creating a thorough financial plan is essential to beneficiary wellbeing. You may have heard professionals claim they are taking a “holistic approach” to this process – but what does that mean and where do you start? Read on for our thoughts on person-centered financial planning.
A person-centered financial plan begins, as the name suggests, with the person at the center of the plan. Professional fiduciaries and family trustees need a deep understanding of the beneficiary in order to craft a plan that will serve the individual and their short- and long-term financial needs.
When working with a beneficiary with special needs, it is important to be cognizant of how a particular disability can impact things like life expectancy, available support services, and long-term health needs. Other information about the beneficiary’s life – their education, employment, lifestyle, interests – can also help in crafting a financial plan that fits an individual’s specific situation and life goals. There are also several other financial factors to consider that may be unique to a beneficiary: what is the cost of living in their area, what is their current and future tax situation, what knowledge or experience do they have in investing, and what is their risk tolerance.
Beneficiaries can have access to a wide range of government, community, and family benefits. Understanding what they are eligible for throughout their life is essential for building a financial plan that takes appropriate resources into account. In fact, the 2013 court case of Liranzo v. LI Jewish Education / Research (N.Y. Sup. Ct., Kings Cty., No. 28863/1996, June 25, 2013). determined that it is the SNT trustee’s affirmative duty to inquire and research all avenues of paying for such requests in order to protect the trust’s longevity.
This can include: Social Security payments (SSI, SSDI, and/or SSA*), health insurance (Medicaid, Medicare, and/or private insurance), Developmental Disability Services, HUD/Section 8 Housing programs, legal aid, etc. Note that when planning for current or future Social Security payments there are different rules for SSI, SSDI, and SSA payments that impact eligibility including work history requirements, income caps, and resource caps.
Developing a detailed budget is an important part of maximizing a trust’s longevity. A budget needs to be made in accordance with a beneficiary’s public benefits structure and starts with identifying expenses that may be covered by public beneﬁts. (You’ll also want to be aware of the planning opportunities provided by the one-third reduction in In-Kind Support and Maintenance when budgeting). A budget will include decision-making around larger expenses, such as:
- Should the beneficiary own or lease a vehicle or rely on other transportation;
- Does it make sense to own or rent their home (costs for maintenance, taxes, utilities, etc. should be taken into account);
- What are their long-term “Optimal Outcomes” – do they want to attend college or retire by a certain age, are there remainder person considerations?
Day-to-day expenses and monthly bills should also factor into financial planning. Anything money is spent on is relevant to a budget: clothing, pet expenses, fees, cable/internet, entertainment, insurance premiums, professional services, food, household supplies, etc. Once a budget is in place, it can be helpful to use a tracking system like True Link platform’s budget feature to keep an eye on spending.
When developing a financial plan for the future, a comprehensive review of a beneﬁciary’s assets and resources is essential. Each individual’s situation will be different but many will include: funds from a structured settlement, inherited IRAs and Required Minimum Distributions (be sure to review for SECURE Act implications), life insurance payouts, Section 529 College Savings Plans or ABLE Accounts, personal resources, and current portfolio holdings. Unique assets such as real estate (beneficiary-occupied, commercial, etc.) or oil, gas and mineral rights should also be considered along with future receivables like inheritance.
Potential Tax Implications
Taxes can be complex for Special Needs Trusts, so it’s important to understand future tax obligations when developing a beneficiary’s financial plan. A trustee will want to be clear on what taxable events can be expected (capital gains, interest, etc.), how that tax flows through to the beneficiary, and what rates are for different events (e.g. ordinary income vs. short-term capital gains vs. long-term capital gains). Fiduciaries should also be aware of Principal and Income accounting for allocation of income and expenses to the trust as outlined in the Uniform Principal and Income Act. There are significant tax differences between first- and third- party SNTs that should be considered as part of any financial plan for a person with disabilities.
Planning for distributions from the trust is another critical consideration. Running a cash flow/cash reserve analysis will help determine how much money a beneficiary needs to meet their day-to-day needs vs. how much should remain in the trust to maximize longevity. In addition to long-term planning, other factors will impact how much and how often a beneficiary receives allocations and where and how those funds can be used (Note: True Link’s platform can be used to schedule and manage these distributions). Restrictions on needs-based public benefits, concerns around addiction or financial vulnerability, and beneficiary empowerment will all play a role in a fiduciary’s plan for SNT distributions.
The Uniform Prudent Investment Act (“UPIA”) lays out standards for trustees to follow when investing trust assets on behalf of beneficiaries. These UPIA investment considerations should be incorporated in a trust’s investment plan:
- General economic conditions
- Effects of inﬂation or deﬂation
- Tax consequences
- Portfolio composition (assets)
- Total return from income/appreciation of capital
- Other resources of the beneﬁciary
- Liquidity needs, income regularity, preservation/appreciation of capital
- Asset special relationship value to the beneficiary
Working with True Link Financial Advisors, who offer multiple portfolio options and understand the tenets of the UPIA and Modern Portfolio Theory can help fiduciaries develop appropriate strategies for their beneficiaries.
The final step of the financial planning process brings us back to where we started – who is the beneficiary and does this plan serve them well. Before implementing a new or revised plan, it’s a good idea to pause and review the approach and make sure it delivers on maximizing beneficiary wellbeing.
Financial planning should be a collaborative, thoughtful, and thorough process that sets a prudent plan for their future. We hope these steps can help professionals and family members start down the right path. Contact us if you have any questions about how we can support you in this process.