When you have a child with special needs, it is crucial to plan their future with the utmost care as they will meet additional challenges to care for themselves and their lives. According to the US Census Bureau, between the years 2008 to 2019, the biggest increase in special needs was the experience of cognitive difficulty, which saw a large jump in prevalence.
Careful estate planning for parents with children of special needs is necessary to ensure government benefit access remains without foregoing family support. Below are some basic planning tips to consider to protect your child with special needs. If you would like to explore these options in more detail, please give us a call to schedule a confidential consultation.
Tip #1 – Designate Guardians and Establish Directives
While your child is a minor, be sure you and anyone caring for your child has signed appropriate directives that specify who should care for your child in the event you are unable to. You may also consider preparing legal documents that name a guardian for your child, again if you are unable to care for your child or in the event of your death.
Once your child is an adult and has the legal capacity to sign documents, that child should have their own set of advance directives naming a trusted agent.
Tip #2 – Consider Using a Special Needs Trust:
First thing to know is that there are several types of special needs trusts:
- First-Party Special Needs Trust
- Third-Party Special Needs Trust
- Pooled Trust
A First Party Special Needs Trust receives its funding from the special needs person as long as they are under 65. The funding mechanisms may be lawsuit proceeds, inheritance, or lump sum disability benefits. This trust can be established by the special needs child, parent, grandparent, or guardian and, when drafted properly, will not affect eligibility for the special needs person’s government benefits.
A Third-Party Special Needs Trust permits family members to use their assets to fund a trust to benefit a person with special needs without negatively impacting that person’s eligibility for government benefits. The funds in this trust type do not have a payback provision, allowing any remaining assets to pass to other beneficiaries as designated by the trustmaker and can be created during a lifetime or under the instructions of a will.
Finally, a Pooled Trust is a community trust that a non-profit organization manages to fund the needs of many special needs beneficiaries. In essence, the non-profit acts as a trustee and can be a good option for small families or those who seek non-family member trustees. The property held by a pooled trust for the beneficiary should not affect eligibility for government benefits.
If you have a life insurance policy or are considering one, you can make the proceeds payable to your third-party special needs trust. Leaving permanent and term life insurance policies to this trust type will not affect the child’s government benefits. If you have retirement accounts, those may be payable to the third-party special needs trust as well if there is a balance at the end of the account holder’s life.
Tip # 3 – Do Not Leave an Inheritance to Be Managed By a Third Party
It is not advisable to leave the property for the care of your special needs child to a third party, such as another older child or other relative. It might initially sound like a good idea and an easy way to prevent your special needs child from being disqualified from disability benefits for having directly inherited financial resources that put them over the asset limits (which is only $2,000 in most cases). However, it is important to remember that this third-party designate, no matter how close the personal or familial bond is, has no legal obligation to follow your wishes, leaving the use of your money to the discretion of that third party. As this type of arrangement is not legally enforceable, your child with special needs will be wholly unprotected after you die.
Tip #4 – Open an ABLE Account
The Achieving a Better Life Experience or ABLE account is similar in concept to the 529 College Savings Plan. An individual experiencing their disability before 26 years old can deposit into their ABLE account up to $15,000 per year with the total contribution limits for an account varying by state. The account grows tax-free and can pay qualified expenses to maintain or improve quality of life. An ABLE account can also receive funds from parents, other family members, or friends who want to contribute to the account. Most government benefit programs are not affected by ABLE account funds.
As you can see, there are many intricacies to consider when creating an estate plan that involves a special needs child. We help clients with their estate planning needs and would be happy to meet with you at your convenience to discuss your situation and determine the best plan for you and your family. Please contact us or schedule a meeting to discuss your situation. We are here to help.
