Parents of a child with special needs face unique challenges when planning their estates, and unless they address them correctly, they risk making mistakes that could have long-term, costly consequences for their child.
For example, they may make the child ineligible for important federal government benefits once he or she becomes an adult, and they may leave their child without the financial resources he or she needs to live the same kind of life they provided when they were alive.
This article is the first of two that will discuss the biggest estate planning mistakes parents of special needs children tend to make.
1. Disinheriting the Child
As adults, children with special needs typically rely on means-tested federal programs, like Supplemental Security Income (SSI) and Medicaid, to help pay for their basic needs such as food and shelter. (A means-tested program is one in which eligibility is based on a potential recipient’s financial resources.) Therefore, to ensure that their special needs child will be eligible to participate in these programs, parents are sometimes advised to disinherit him or her.
The problem with this advice, however, is that means-tested federal programs typically finance a very minimal standard of living, and unlike adult children without special needs, special needs children may not be able to supplement those benefits through work.
A far better option is for parents to set up a Special Needs Trust to benefit their special needs child. Also called a Supplemental Needs Trust, this trust lets parents leave their special needs child an inheritance without jeopardizing his or her eligibility for federal benefits. Furthermore, a Special Needs Trust can also benefit a special needs child should his or her parents become incapacitated. And by the way, anyone who wants to provide for a child with special needs — like grandparents, for example — can establish a Special Needs Trust or contribute to one that has already been set up.
A Special Needs Trust is complicated, so parents should not try to establish one themselves; they need the help of an experienced attorney. The attorney will also help them make certain that all of the beneficiary designations on their life insurance and retirement accounts are coordinated with the trust. (Full disclosure: I am an estate planning attorney.)
None of us know when we will die or if we will become incapacitated, so it’s essential that we plan our estates sooner rather than later. Ignoring this advice can have very negative consequences for the people we leave behind, including minor children and especially minors with special needs. Among other things, parents’ failure to plan can mean that their children don’t have the financial resources they need to continue living the kind of life they enjoyed while their parents were alive.
3. Not Making Your Planning a Team Effort
Estate planning for a special needs child is complex, so it’s critical that parents assemble a team of experts to help them ensure that estate plan does what they want it to do. This team should include an attorney with specific experience in the area of special needs planning; a life insurance professional to help ensure that there will be enough money to enhance the benefits parents want for their special needs child; a CPA who can prepare the Special Needs Trust’s tax return if one is needed; an investment adviser to ensure that the resources in the trust fund will last for the child’s lifetime; as well as any other key advisers who may be necessary to help support the goals of the trust.
4. Ignoring the Particular Needs of a Special Needs Child
Planning that is not designed to meet the specific needs of a special needs child will probably make that child ineligible for essential government benefits. A properly designed Special Needs Trust promotes the comfort and happiness of a special needs child without sacrificing his or eligibility for those benefits.
Such a trust can pay for a multitude of things, including medical and dental expenses; annual independent check-ups; necessary or desirable equipment (like a specially-equipped van); training and education; insurance; transportation and essential dietary needs.
Furthermore, if a Special Needs Trust is sufficiently funded, a child can also receive electronic equipment and appliances; computers; vacations; movies; payments for a companion; a more appropriate dwelling and other things that help maintain the child’s self esteem and enhance his or her quality of life — the sorts of things his or her parents may be able to provide the child now as a minor, but not as an adult.
A generic or “form” special needs trust is often unnecessarily inflexible. As a result, distributions to the child are overly strict, and certain luxuries the child might otherwise have been able to enjoy are forfeited.
5. Including a ‘Payback’ Provision in the Trust
Another frequent mistake occurs when a Special Needs Trust includes a “payback” provision. A payback clause provides that any money remaining in the trust when the beneficiary dies is paid to the government or state where the beneficiary was living, rather than to the family. Although a payback provision is necessary in certain types of Special Needs Trusts, a qualified attorney can ensure that any money left goes to the family, not to the state.
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