Gary Benefiel, a financial adviser for Merrill Lynch, talks with Denise Kirk and her mom, Virginia Kirk (right). Denise Kirk is mentally retarded, and her mom has hired Benefiel to help her set up a trust for Denise. One in five households includes a -- Robert Scheer / staff photo   Special-needs trusts resources • The Arc of Indiana Master Trust; 1-800-382-9100. • Merrill Lynch. Resources, including planning calculator. • The Financial Planning Association; 1-800-282-7526. List of planners specializing in trusts. • The Arc of the United States; 1-301-565-3842. Support for the mentally retarded and their families. • National Association of Personal Financial Advisors. Link to planners. Links to external sites will open a new browser. IndyStar.com does not endorse external sites.

Virginia Kirk built a nice nest egg over the years, but the mother of five wanted to pass the bulk of it to her daughter, Denise.

The trouble was that her mentally retarded daughter would have to spend down that inheritance to a few thousand dollars to continue to receive Medicaid benefits that now help pay for her continual care.

"I've been thinking about it for a long time. I didn't want others to be responsible for her," said the Mooresville mother.

Kirk established a trust fund for her daughter. Trusts shield money you want to pass on to a special-needs child after you die or become incapacitated. Trusts also can allow a parent who goes into a nursing home to continue to fund a child's trust without jeopardizing the parent's own Medicaid eligibility.

Trusts might pay for such things as a child's transportation, clothing, vacations and medical expenses not available through Medicaid or other insurance programs.

One in five households includes a person with special needs. About 10,500 of these families have about $1.5 billion in assets invested in the stock market, according to Merrill Lynch Special Needs Financial Services.

Some options:

• Pooled trusts of nonprofit groups. Essentially a pot of invested money from hundreds of families. These encourage family members to decide how assets will be used on behalf of the child, but the trust assumes the responsibility of keeping up with changing government rules. The nation's largest pooled trust for people with disabilities, The Arc of Indiana, has more than $12 million in assets in its two trust funds.

Arc's Trust I charges an enrollment fee of $550 and requires a minimum funding of $23,500, although that can be reached upon the parent's death. There also is an annual consulting fee that cannot exceed the equivalent of $330 in 1998 dollars ($525 today), reflecting inflation. An annual renewal fee of $72 ceases once the trust is funded.

Trust II allows the disabled -- or anyone on their behalf -- to fund a supplemental trust with their own money, without jeopardizing their Medicaid benefits. It may be opened with a minimum of $300, plus enrollment fee. It converts to a Trust I if the amount exceeds $23,500. The minimum fee is on a sliding scale. For assets of $5,000 or less, the fee is $15 a year if the account is not used -- $75 if used.

Money still can be placed into the Arc Master Trust after the parent dies by a competent child or through an attorney. But in that case, the remainder of the money at the child's death goes to the state. So plan early, said Alan Kemp, director of the Arc Master Trust. "The dilemma is the lack of knowledge can really lead to unnecessary problems."

• Bank trust departments. They're often the first place people think of, although it used to be that if you had less than $100,000 -- and today it's often several hundred thousand dollars -- it didn't make sense to go through a bank because of fees they charged, said Dennis Frick, an attorney and director of the Senior Law Project at Indiana Legal Services.

If you go this route, make sure the trust agent is thoroughly familiar with how not to endanger eligibility for Medicaid and Supplemental Security Income -- something that often isn't a big issue with high-wealth trust clients.

• Working through a financial adviser. Some brokerages and planners in recent years have focused more on special-needs children as part of parents' overall financial planning.

Kirk's adviser, Gary W. Benefiel of Merrill Lynch, had dealt primarily with her retirement planning but soon learned "her main concern was having enough savings and income to maintain Denise's lifestyle" after Virginia died.

The brokerage firm referred Kirk to several attorneys to set up a trust into which her investments will flow after her death. There was no extra fee for special-needs planning beyond what she pays Benefiel to manage her money. Kirk kept her attorney's fees well below $1,000 by choosing a local attorney. Merrill Lynch also has built ties with several nonprofit groups that could provide help in administering the trust, although Denise's siblings will take on that responsibility.

Call Star reporter Chris O'Malley at 1-317-444-6081.