Child With Disabilities? Estate Planning?

Estate Planning For A Child With Disabilties? This Is What You Need To Do…

AnaMVeliz-EstatePlanningForAChild
Edited by Ana M. Veliz

To support their special needs child and maintain their access to crucial public benefits programs, parents aim to utilize their estates in a way that enhances their child’s life. An effective approach to achieve these objectives is by creating a well-prepared special needs trust. The primary objective of special needs estate planning is to ensure that the portion of the estate transferred to the special needs child after the parents’ demise is not regarded as an available asset by public benefit agencies. Parents should be mindful of both monthly income and principal, as excessive amounts of either can potentially affect the child’s eligibility for benefits in the future. This type of planning is useful for a variety of reasons, such as managing funds for the child’s lifetime benefit, preserving their eligibility for public benefits, and establishing a reserve of funds that can be used if public funding is discontinued or limited.

What Not to do When Planning For a Child With Disabilities 

Families of special needs children receiving needs-based public benefits should be aware that there are some estate planning options which are not recommended and may have a detrimental effect on the child’s eligibility for public assistance.

  • Disowning the offspring is the most straightforward approach, yet it fails to achieve the core objective of enhancing the life of a child with special needs. This method of completely disinheriting the child does not offer any support, financial or otherwise, that would positively impact their quality of life or personal development.
  • Allocating the estate to the siblings upon the demise of the parent could be a viable option, in which the entirety of the estate is bequeathed to the brothers and sisters with the expectation that they will look after their disabled sibling. However, this approach carries a range of inherent risks, such as potential claims from the siblings’ creditors, bankruptcy or insolvency, the dissolution of marriages, improper management of the funds, among other challenges. This method may, nonetheless, be deemed suitable in instances where the inheritance value for the child is relatively small and limited, with higher semantic richness in the description.
  • Leaving an inheritance to a disabled child may result in significant negative consequences on the child’s eligibility for vital publicly funded benefits. Unintended repercussions might include the reduction or complete loss of Supplemental Security Income (SSI) and Medicaid benefits, which are crucial for maintaining access to practical health care and other forms of public assistance. Additionally, the loss of Medicaid could jeopardize the child’s ability to obtain essential services such as housing support, supported employment opportunities, vocational rehabilitation, group living arrangements, job coaching, personal care assistance, and transportation aid. Essentially, though the intent is to provide financial stability, leaving an inheritance without proper planning may inadvertently harm the disabled child’s access to essential services and resources provided by public assistance programs.

This is the Option you Should be Taking:

To ensure a positive outcome for a special needs child, most families prefer to leave any inheritance in a Special Needs Trust. This approach involves using a properly drafted and administered trust that enables the child to continue to qualify for public assistance programs, particularly those that have stringent financial eligibility criteria. The assets held in the trust are not accessible to the child, making it possible to qualify for means-tested programs. For this reason, the trust must be a discretionary spendthrift trust, and the trustee’s capacity to provide money to the child is strictly limited. Additionally, the child cannot compel the trustee to release any trust money under any circumstances. Another advantage of the Special Needs Trust is that the parents can appoint a trustee to act as the child’s money manager, ensuring proper financial management after their death since the child may be unable to manage their finances.

Create A Special Needs Trust Living Or At Death

Creating a Special Needs Trust is an important decision for families and can be done either during their life, in the form of a living trust, or upon their death, through a testamentary trust. A living trust offers the advantages of avoiding probate, allowing other family members to contribute funds and providing hands-on experience with its administration. Additionally, it also allows for more flexibility when making modifications to the trust due to changing life circumstances. Testamentary trusts offer similar benefits but are generally better suited towards long-term planning and asset protection. Whatever form of Special Needs Trust is chosen, it should reflect each family’s unique needs and goals.

Revocable Or Irrevocable?

Determining whether a Special Needs Trust should be revocable or irrevocable largely depends on the family’s priorities and tax considerations. If the primary goal is to maintain maximum control over the trust and income tax implications are not a significant concern, a revocable trust may be the most suitable option. On the other hand, an irrevocable trust might be a more appropriate choice for families who prioritize income tax advantages, or when the trust’s assets are likely to exceed one million dollars, potentially triggering federal estate and gift taxes. Ultimately, the decision to establish a revocable or irrevocable Special Needs Trust should be informed by the specific needs and objectives of the family, as well as any potential legal and financial repercussions.

Selecting A Trustee

One of the crucial decisions that families must make to ensure the long-term success of their Special Needs Trust is selecting a Trustee to manage the trust. The Trustee has the responsibility of administering the trust, and choosing the right person for the job is vital. In some cases, family members may view the funds in the trust as their own, which could jeopardize the child’s eligibility for public benefits. Hence, it is often best to select an independent, non-family member as the Special Needs Trustee. Options include a distant relative, attorney, trust company or financial institution, non-profit organization with special needs experience, or co-Trustees, where a family member collaborates with a trust company. Each of these options has its advantages and disadvantages, and it is advisable to consult with an attorney or financial advisor before selecting a Trustee.

In Conclusion Make it Legal  

Merely expressing your wishes verbally is not enough to ensure that they are legally binding. Parents must have their wishes documented legally. Some states will dictate how your estate is distributed, as well as who becomes the guardian of your child if you don’t have a Last Will and Testament or Living Trust. To make these decisions, you must have the proper legal documents. It is critical for all individuals, especially parents of children with disabilities to receive legal guidance in developing an estate plan. It is not advisable to attempt to draft legal documents yourself, purchase forms, or copy documents from the internet or other sources. Too much is at stake, and you require legal counsel with expertise in estate planning for families with disabled members.

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    About the author

    Ana M. Veliz

    Ana M. Veliz, a Spanish-speaking attorney, has more than 25 years of experience providing dedicated assistance to Miami families in these select areas of the law.

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