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Special People, Special Needs, Special Plans
Do you or a close friend have a child or other loved one with special needs? Do you have concerns about his or her future financial security in a world without you? If the answer is yes, then you need to ensure that you “do no harm,” when including them in your estate plan.
This applies to families with a beneficiary who may be relying on Supplemental Security Income (SSI) and other government-assisted programs for housing, health, and support programs. This includes people with Downs Syndrome, mental illness, or significant physical disabilities. If this applies to a loved one, you are in good company.
There are approximately three million families who report having at least one child with a disability. No one needs to tell you or these families about the unique major and minor daily challenges that come with having a child with special needs. This hands-on caregiving leaves little time to ponder what would happen in terms of financial security, was your child with special needs to outlive you.
Research also bears this out. Shockingly, more than half of all parents caring for a child with special needs have no long-term care plan in place, including an estate plan. Of those parents who have created an estate plan, about half report planning to leave an inheritance outright to their child. Many of them have already designated their child as a direct beneficiary on life insurance and retirement funds. Does this sound familiar?
The Challenge
Most public assistance programs are means-tested. In other words, a child with special needs can only own or have access to limited financial resources in order to first become and then remain eligible for benefits. Inherited assets can be more of a problem than a solution when they make your loved one in need of assistance ineligible for such aid. If your loved one is eligible for benefits, then any direct inheritance will be claimed by the government as reimbursement for benefits paid during his or her lifetime. Only after such reimbursement, may any remaining funds pass as directed to family members.
How can your estate planning avoid triggering ineligibility for benefits and keep the inheritance in your family long-term?
The Solution
The appropriate estate planning approach to provide an inheritance “safety net” for your child with special needs is known as a special needs trust (SNT). The primary objective of a SNT is to pay for goods and services to benefit your child, without disrupting eligibility for public assistance programs. In short, your child may only “own” limited resources, but he or she can use assets owned by the SNT or enjoy services paid for by the SNT.
For example, the SNT may own the condo where your child resides. Even though dental and vision examinations, braces, and eyeglasses are not provided by government assistance programs, the SNT can pay for them directly. In short, the goods and services benefitting your child through the SNT cannot “supplant” benefits otherwise provided by public assistance.
Not a Do It Yourself Challenge
The rules and regulations governing all aspects of a SNT are complex. As a result, there are many moving parts when it comes to creating, funding, and administering a SNT. The consequences of a single misstep can be financially fatal to your estate plan. A SNT can be established as a standalone legal instrument, under a last will and testament, or under a revocable living trust. Regardless, you do not want to try to create a SNT as a DIY project. Work with an experienced estate planning attorney.
Unfortunately, many parents with special needs children never get around to actually having a plan in place. This option of doing nothing is especially risky when beneficiaries have special needs.
Upcoming Webinar
We will be exploring aspects of Special Needs Planning in an upcoming Webinar. Check our Events Tab for times.
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