All parents want to take care of their children throughout their lives. But when you’re the parent of a child with a disability, the need to make sure that your child is cared for and protected is even greater.
That’s why it’s so important for parents with dependent children (example: a child with a disability) to set up a trust fund that will provide for their child’s financial future, even after the parents have died.
“If you have an adult child with a disability who is unable to care for themselves financially, parents often need to support them even when they become adults, so they tend to worry about who will take care of them when they die,” explained Karen Rose, a trust fund officer with First Bank & Trust. “A trust fund is a way someone can ensure that their dependent will be taken care of.”
Rose remembers one couple who was going through a divorce that set up a trust fund for their daughter with a developmental disability who was living at Lamb’s Farm in Libertyville.
“Even though they were getting divorced, they both wanted to make sure she was taken care of,” Rose says. “It’s good that they did it because they are both deceased now.”
What is a Trust?
A trust is a legal document that allows a third party (known as the trustee) to control assets on behalf of a beneficiary. When you set up a trust fund, you can either designate a friend or relative as the trustee, or you can choose someone from a bank or financial institution that holds the money.
Often times, people who have a mental or developmental disability have difficulty managing their finances alone, so it’s up to the appointed trustee to act using their discretion in following the trust’s legal document while disbursing money to the beneficiary.
“As a trustee, you have a fiduciary responsibility to manage the money prudently,” Rose explains.
When you set up a trust fund, a trust document is drafted giving the beneficiary the ability to request funds from their trust – for example, to buy a new car, go on a vacation, or pay for some other expense. At First Bank & Trust, whenever someone submits a request, it is reviewed by the discretionary committee at the bank, which checks the terms of the trust document and then decides whether to honor the request.
“This is a very important job,” Rose says. “You form a very close relationship with the beneficiaries because you’re really taking the role of the parent in regards to financial decisions.”
What is a Special Needs Trust?
Special needs trusts can be set up to ensure that beneficiaries with disabilities can receive payment from their trust fund while collecting the government benefits they are entitled to. This is made possible by drafting a trust document that stipulates there be no duplication in areas of support provided by the government.
FAQs about Setting Up a Trust Fund
If you are the parent of a child with a disability, and you’re considering setting up a trust fund for your child, here are some things you should know:
Q: How do I know if setting up a trust fund makes sense for my child?
A: Rose has an easy rule of thumb when deciding whether or not setting up a trust fund is right for you. “Anybody that’s worried about their dependent managing their finances alone should consider a trust,” Rose says.
Q: Who should I select as the trustee?
A: Rose says selecting a professional who is not a family member is usually best because it reduces the tension that can arise when one family member has control over another’s finances. “Professional advisors have the ability to remain independent without any conflicts of interest in regards to the beneficiary’s needs,” Rose says.
Plus, if an individual is named as the trustee instead of a financial institution, that person could also die, leaving the trust fund unmanaged. When you name an institution, such as the bank, as the trustee, you know there will always be an employee representing the bank.
Q: If I want to set up a trust fund, how do I get started?
A: Rose says you can start by coming into the bank and talking to a trust officer, who will then refer you to a trust and estate attorney.
Q: How much does the bank charge for trust services?
A: The bank’s fee is 1 percent annually, which is calculated using the trust fund’s portfolio market value.
Q: Does a trust fund have to be for a child with special needs?
A: No. Trust funds can be established to pass money on to anyone with stipulations. For example, parents can designate that their children will only receive a certain percentage of their inheritance until they turn a specific age, or they can designate that money will never be distributed outright in order to protect a beneficiary from creditors or even themselves.
“A trust arrangement is customized to each individual’s needs,” Rose says. “Many clients have unique reasons why they don’t give beneficiaries money outright, but instead establish a trust for their beneficiary.”
Q: Are there any other benefits of setting up a trust?
A: Unlike a will, which becomes public record, a trust is a private arrangement, so it’s ideal for individuals who want to keep control of their money and maintain their privacy.