This article is a part of True Link’s Guest Expert Series. We have interviewed leaders knowledgeable in disability planning, elder law, and trust administration and will be sharing their expertise with you in a series of videos and posts. Note: this article is not intended to provide investment, legal, tax, accounting or medical advice. Before making decisions involving investing, legal, tax, accounting or medical concerns, you should consult appropriate professionals regarding your specific situation.

For people administering a Special Needs Trust, creating a budget for expenses is an important part of developing a person-centered financial plan. 

The value of a budget 

A clearly-drawn-out trust budget can help the trustee avoid conflict with a beneficiary and provide the beneficiary with stability and assurance that their needs will be met.

Yolanda Mazyck, Executive Director of Shared Horizons, explains her organization’s motivation to create “Living Budgets” for their beneficiaries, “[We do this] so our beneficiaries understand what their budget is and what the parameters will be. And also for the trust administrator to understand that we have a plan and we know how to manage the account in a way that is meaningful.” 

Establishing a clear spending plan also helps trustees and financial advisors make more informed investing decisions. Both long-term and short-term beneficiary budgeting and planning are crucial to any beneficiary’s investment strategy. In fact, the Uniform Prudent Investor Act (“UPIA”) specifically calls out “liquidity needs” as a factor that should be considered during portfolio construction [UPIA § 2(c)].

What goes into a budget

If working with a professional trustee, the first thing the trustee will do after getting to know the trust's beneficiary and family is to establish a budget. 

“We look at the person’s lifestyle, what do they need, what is their health like, what are their dreams and aspirations, what are the things that they would like to use those funds for to make their lives the best they can be,” shared Cici Gaynor, Program Director of The Arc Oregon. Then, they determine, “is that a reasonable amount of money to last them their lifetime?”

How complex or detailed a budget needs to be depends on the beneficiary. Some trust beneficiaries are more independent and able to manage their own financial affairs. In these cases, the trustee may only have to establish a system of payments to or for the benefit of the beneficiary that are guaranteed to last over time, while keeping funds in reserve for emergencies (as long as they remain in compliance with public benefits rules). 

Other trust budgets are much more complex. Trustees may have to pay for daily living expenses, extraordinary medical care, and once-every-ten-year resources like custom-equipped accessible vans. In these cases, professional case managers, medical professionals, and social workers may be consulted to help with long-term planning. Coupling the budgeting process with a trust depletion analysis or longevity simulation, which model the probability of different investment outcomes, can also assist the trustee in making appropriate plans and discretionary distribution decisions.

Revisiting a budget 

Creating a budget is not a set-it-and-forget-it proposition. Trustees will want to review it at least once a year to assess whether spending is on track with expectations.

As Gaynor details the process at The Arc Oregon, “Each year we go through the process of reviewing: How did we do? Did we stick to the budget? Are there adjustments that need to be made for the future? Did they have an unexpected downturn in health?” 

Like Shared Horizon’s language around “Living Budgets” suggests, annual spending targets should not be set in stone. You need to revisit and evaluate your systems frequently to determine if they are still meeting the needs of the beneficiary. Their well-being is your ultimate responsibility.

‍

Want to watch these videos on Vimeo? Here are the links to the guest expert videos related to this topic:

• Establishing a Budget for Special Needs Trust Spending - Cici Gaynor, Program Manager, The Arc Oregon
• ‍What to Plan for at the Beginning and End of Trust's Lifecycle - Yolanda Mazyck, Executive Director Shared Horizons