My approach in recent years has been to work with WisPACT for when a parent is contemplating a special needs trust for a child. They have created two master trusts, one where a person is putting his own money into such a trust (often referred to in legal circles as “self-settled”), and the one I focus on, where parents want an efficient way to create a trust for what is or will become an adult child with special needs. It’s not so much the special needs as the goal of providing for the child without disturbing the child’s eligibility for valuable government-provided benefits. WisPACT’s nomenclature is:
- The Self-Funded Trust
- The Third-Party Trust
This article refers to what WisPACT calls the Third-Party Trust. I see two options:
- Historically lawyers like to create free-standing trusts, generating greater fees to the lawyer. It also offers the ability to fine tune.
- I prefer to recommend the client contribute to create a component subtrust under WisPACT – which is a master trust designed to flexibly apply the money for the child’s benefit to the greatest extent without risking eligibility for government benefits, and you can provide for remainder beneficiaries (perhaps the other children of the parents) after the special needs child dies. There are thousands of such trusts being administered under the WisPACT master trust. The eligibility rules for government benefits are constantly changing (tightening ), making it a crap shoot to pick option 1 and hope that what you have drafted works against not only present rules but also unknown future rules. In that environment I believe strongly that:
- There is something to be said for safety in numbers – if the government in the future goes after eligibility for beneficiaries of WisPACT, it is going after many people – that’s where I want my client to be.
- The people who administer the WisPACT subtrusts and are in contact with the beneficiaries are living and breathing special needs situations all day every day and are the people most likely to efficiently and thoughtfully apply the money to genuinely benefit the special needs child.
To learn more about WisPACT, please click here.
It is possible to wait until the parents have died to set up a subtrust under WisPACT. A better way is to set up a small one during lifetime and then refer to it in the clients’ main revocable trust. This also gives the parents a chance for real world experience on a small scale while they are still alive and could change their mind if they do not like what they see.
© 2015 by Stephen J. Smith
creator, The Family Vision Experience™