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Acorns To Trees – Choose Accounts for Funding Trusts

By Rob Wrubel, CFP®

The squirrels in my back yard hunting for their stored food as Spring comes to Colorado. Every day I see them out there digging here and there looking for something to eat. How they remember where they put everything is a mystery to me.

Saving money to fund a special-needs trust in the future is a bit like the activity of my backyard squirrels. We take some money away one day and put it into something that we expect will be there down the road. Hopefully, our savings and investing is more bountiful than the squirrels’ stashes as we want our money to grow to more than we stored away.

There are many different types of assets to accumulate for the future and we can use most of those to fund a special-needs trust when the time comes. This article talks about third-party funded trusts, not ones that come from an injury settlement or a poorly planned inheritance.

Usually, I recommend that a trust gets funded after someone passes away and that means we are looking at more than a few years when talking about funding a trust. You can put money into a special-needs trust today as part of your long-term planning goals but there are tax and other reasons why it does not make sense for most people.

We want our money to grow. Stashing money in a bank account means it will lose money to inflation most of the time. I don’t know about you, but I hope to live for many decades and any money I plan to provide to my daughter’s special-needs trust needs to grow. Movies, food, sunglasses, mobile devices and streaming subscriptions will all cost more next year and go higher and higher as time goes by.

Several types of accounts will be important to you and your family to save for your family member with a disability. Each account has different parts that work well or are limitations and more articles will come about each or read about them in my book here: Books – Rob Wrubel – Special Needs Planning.

ABLE accounts. ABLEs are funds specifically for the person with a disability and is the only account type that can be owned by a person with a qualifying disability and hold more than $2,000 without reducing benefits. They have some restrictions but generally are an excellent type of account.

Investment accounts. These accounts can own stocks, bonds, ETFs and mutual funds. In my planning practice, I work with families to set up investment accounts that will go to the trust. Parents can take SSI income and other resources to fund an account in Mom or Dad’s name. The money moves from the rep payee account to the parents who save and invest it for the future.

Real estate. It’s pretty common for families to want to use the home as an asset to fund a trust. The trustee can keep the home or, if the beneficiary cannot live there and support the home, the trustee can sell it. Homes are often the biggest asset for families and a paid-off home can put significant dollars into a trust.

Retirement accounts. Roth and traditional IRAs, 401ks and other retirement accounts make excellent long-term investment vehicles. The Roth especially can be a great way to fund a trust especially if you have other means of income in retirement and can let the Roth grow for a long time.

Life insurance. Life insurance can be used to fund a trust. Once you have financial stability, have saved for your own retirement and have other assets, you might want to look at a life insurance policy to fund the trust. It can be part of a plan and, for me in my work, comes after most other asset types are in place.

As you think about resources to fund a trust, remember that you will not want those assets in your family member’s name. The $2,000 resource test applies to most assets other than an ABLE and who owns what is important today and into the future.

Emerson said that “the creation of a thousand forests is in one acorn” and maybe one of those left in my yard by the squirrels will grow into a tree that launches a thousand forests. Time, patience and a little care can turn our small dollars today into a trust fund that can support and care for our loved one with a disability in the future.

This article is not intended as investment advice or representative of any specific investment strategy. Consult with your legal, tax and investment team before taking any action.