In protecting the futures of their children with special needs, families face unique challenges and opportunities. Providing appropriate medical, educational, recreational, and employment opportunities for your special needs child can result in a lifetime of pursuing public and private programs and services. Too often, the parents or persons responsible for financial and medical management of the special needs child receive misguided advice to disinherit them.
Who Qualifies as Special Needs?
The term “special needs” refers to the clinical and functional development of individuals requiring assistance for medical, psychological, or mental disabilities. For government benefits programs, special needs are a part of the larger category of disability. Special needs diagnoses are considered disabilities, but not all disabilities are special needs. Maintaining your child’s qualification for government disability benefits can be done through estate planning strategies. You do not necessarily need to disinherit your special needs child to preserve them.
How Does Inheritance Affect Government Benefits?
Directing assets to the child can result in their inheritable assets and income levels exceeding allowable levels, making them ineligible for public assistance. This problem can make parents decide not to provide the same level of inheritance as they would for other children. It is a painful decision to make. However, other methods exist to provide inheritance and protect government benefits with careful planning.
Estate Planning Solutions
The proper creation of a special needs or supplemental needs trust can help the child without jeopardizing eligibility requirements for government disability benefits. Public benefits have specific spending designations that cover shelter, food, clothing, and transportation. The monies from a special needs trust are designed to improve the child’s overall quality of life but are spendable only in certain categories.
The trust money can’t be used for housing, food expenditures, or other financial needs that government benefits meet. Instead, it is used to pay caretakers, out-of-pocket medical expenses, some transportation, educational expenses, recreation, vacations, and more. A disability planning attorney can design your special needs trust to comply with the specific rules of the beneficiary’s public benefits program.
How Does a Trust Work?
Determining how to fund a special needs trust depends on your financial situation. Life insurance policies are a popular choice, as are income-producing assets that increase the trust’s future bottom line. How much to fund the trust also depends on your financial situation. A broad list of your special needs child’s expenses to consider include:
- Medical care
- Care assistance
- Special equipment
- Education and or employment costs
- Personal needs
- Future asset replacement costs like a car, furnishings, etc.
Some of these broader expense categories will fall to government benefits spending and others to the special needs trust. To avoid providing monies for categories that can affect eligibility for government benefits like SSI and Medicaid, do not pay for the following expenses with special needs trust funds:
- Rent or mortgage payments
- Essential food and groceries (the occasional restaurant outing is permissible)
- Direct gifts of cash to the beneficiary for any purpose
- Property taxes
- Condo or homeowner association dues
- Mortgage required homeowner’s insurance
- Utilities and other hook-up or connection charges
Who Owns or Controls the Trust
Often, the parents choose to be the trustee(s) of the special needs trust until they become incapacitated or pass away. An alternate or backup trustee with expertise in managing trusts who can pay bills and taxes, keep accounts, and make sound investments is crucial to designate. The parents may also choose to designate a professional trustee for the same purpose.
Sometimes, to alleviate any discomfort with an outsider managing their child’s needs, the parents opt for a professional and family member as co-trustees. A trustee can also hire a trust protector who is given the legal power to review accounts and fire and hire trustees, or a trust advisor who will inform the trustee of the beneficiary’s needs. A special needs planning lawyer can help you to assess if these additional oversights are necessary.
Parents and other decision-making individuals using a special needs trust have the means to treat their special needs child similarly to other children. While different types of trusts are unique to protect government disability benefits, the child will be able to inherit as a trust beneficiary. Once the special needs trust has served its purpose, any remaining assets can be divided among surviving family members and even fund the organizations instrumental in the special needs child’s care.
If you prefer, you can designate a charity to receive the remaining principle as a form of legacy gift, perpetuating your child’s memory. A disability or estate planning attorney knows how to create a special trust to meet your child’s needs and financial goals while protecting your child’s government benefits. There is no need to disinherit your special needs child. We hope you found this article helpful. If you have questions or would like to discuss your personal situation, please do not hesitate to contact our Woodland Hills office at (818) 292-8160 or our Beverly Hills office at (310) 230-5686 to schedule a consultation.