WisPACT special needs trusts (SNTs) are not the only estate planning option for beneficiaries with disabilities, but they are the tool we use more than any other. This post gives an overview of special needs planning and explains why WisPACT trusts are a great fit for so many of our clients.
Understanding Special Needs Trusts
First, some background for those new to SNTs.
It is always a bad idea to give money directly to a person who is receiving public benefits due to disability status. If money is given directly to the beneficiary, they may lose their public benefits. In some cases, the inherited funds must be spent for their care until exhausted. Once the funds are exhausted, they will need to re-apply for public benefits. This is can be worse than leaving them nothing.
SNTs avoid this problem. Funds in a properly drafted SNT will not affect the beneficiary’s eligibility for public benefits. Instead, the funds supplement—not replace—public assistance the beneficiary receives, generally from SSI and MA.
In our practice, we are most commonly assisting parents who are providing for a (minor or adult) child with disabilities as part of their estate plan. Those trusts are called third party SNTs.
Note that If a person who is receiving benefits receives funds directly, we can set up a different type of SNT, called a first party SNT, to receive those funds and potentially preserve those benefits. These types of trusts are a crisis planning tool, and we do not use them for estate planning.
Professional Trust Management - For Everyone
Once an SNT is created, someone needs to manage that trust—that is, to serve as trustee of the trust. The trustee’s job is to invest trust money, make decisions about distributions, prepare annual accountings, and file trust tax returns. Serving as a trustee of any trust can be a lot of work. Serving as a trustee of an SNT is particularly difficult, because managing distributions requires a deep knowledge of public benefits programs, and a mistake can be costly for the beneficiary. In addition, the trust will last a very long time, in many cases longer than any one individual’s ability to manage it.
Because serving as trustee of a SNT is so difficult and will continue for a long time, having a professional (as opposed to an individual) is a best practice. However, prior to WisPACT, professional management was available only through traditional banks and trust companies, which generally need at least $300-$500K under management in order to manage a SNT. This meant that smaller funds had to be managed by an individual family member.
WisPACT was created to make professional administration available to all beneficiaries, regardless of trust size. (WisPACT’s average trust size is about $35,000, but they will start a fund for as little as $750). Under the pooled trust structure, disabled individuals have their own trust accounts with WisPACT. WisPACT hires a professional to invest the funds as a single pool. WisPACT makes decisions about distributions in consultation with a trust advisor (a family member or guardian of the beneficiary). By pooling the beneficiary funds and investing them together, WisPACT creates efficiencies of scale that allow it to accept even small funds.
This is why WisPACT trusts are such a great fit for so many of our clients. Most families with beneficiaries with disabilities have less than $500K to give to a trust for their disabled child, and this gives those families access to professional trust management.
Additional Benefits of a WisPACT Trust
In addition to the general benefit of professional trust management for small funds, WisPACT trusts provide some specific benefits not available with any other trust structure. The way this works is:
When the account is created, the creator (our client, typically the parent) puts a minimum of $750 into the account, plus $250 for the setup fee (which WisPACT will typically reimburse). This is money that can be used for the beneficiary’s needs.
WisPACT, as a nonprofit organization, has grants available that will reimburse up to $2,750 in attorney’s fees for creation of the fund. In many cases, this will cover our firm’s entire fee for the family’s estate plan. We invoice WisPACT directly for this.
Once the trust is created, the beneficiary is eligible for grants of up to $5,000 per year from the WisPACT retained fund. (What this retained fund is and why it has the resources to do this for so many beneficiaries is a long story, but it does.) Most beneficiaries are eligible for this, although this is always a case by case decision made by WisPACT based on the beneficiary’s needs and the nature of the request. Starting July 1, 2023, new beneficiaries will be subject to a one year vesting period before being able to utilize the Retained Fund.
The Bottom Line
Ultimately, for $1,000 out of pocket (that can be used for the beneficiary’s needs), a family with a child with disabilities gets an estate plan, a professionally managed trust fund to use as part of that plan, and potentially $5,000 per year to spend on the beneficiary for a very long time. This is something that is a great solution for the vast majority of families with a special needs child.
Want to discuss setting up a WisPACT trust as part of your estate plan? Call our office at 715.544.8393 to set up your no obligation consultation.