Planning for a loved one's future is one of the most critical aspects of making sure they are protected. This article offers tips you can employ in your planning process can create a meaningful and comprehensive approach, addressing many of the challenges of special needs family members without negatively influencing eligibility for government programs or other loved ones you are providing for in your estate plan.
Careful consideration of asset division among your children
Nothing requires you to treat each loved one equally. Consider the potential needs of your loved ones and provide for them according to their needs. Typically this means that a child with special needs who requires more assistance throughout their lifetime will have greater support to thrive. Explain this to your other children who are blessed with good health and can lead self-sufficient, productive lives without equal inheritance.
Do not disinherit your loved one with special needs
Disinheriting a special needs child may protect their eligibility for government benefits like Supplemental Security Income (SSI), Medicaid, and Section 8 housing because these benefits are means-tested programs with strict asset and income limits. Still, the approach is too simplified. More sophisticated legal entities like a special needs trust can meet certain discretionary spending needs without interfering in public benefits programs. A special needs planning attorney can provide options that allow your child to inherit.
Carefully choose a trustee when creating a special needs trust
This trustee will need “sole and absolute” discretion, a standard legal requirement when determining beneficiary eligibility for SSI or Medicaid. What seems a natural choice, having an adult sibling as successor trustee may cause a conflict that will negatively affect the future of your special needs child. Other options include:
- Naming an attorney or financial institution as a professional trustee or co-trustee
- Providing the trustee authority to delegate specific tasks to a professional representative to receive additional expertise
- Naming a family member but also designate a trust advisor for assistance with investment decisions
- Appointing a trust protector with authority to remove the trustee if they are acting out of self-interest and replace them with a corporate trustee
Understand taxes and allocation of expenses in your estate
How you allocate taxes and expenses among inheritors needs consideration. If you create a special needs trust during your life or upon your death, specify if your estate taxes apply to the trust, will receive charges against that trust, or be allocated between the remaining shares. Requiring a special needs trust to pay some of your estate taxes reduces funds available to your special needs loved one.
What if you experience incapacitation?
Including a provision in your durable financial power of attorney permitting your agent to make non-support, discretionary distributions for your special needs child’s benefit allows the agent legal authority to establish and fund a trust for this child. Also, consider authorizing this agent to create a “sole benefit trust” for your special needs child in case you require nursing home care. Transfers to this trust type may assist in a parent’s eligibility qualification for Medicaid while preserving assets held in trust for the child.
Review beneficiary designations and titling of all your assets
Ensure that assets do not inadvertently pass directly to your special needs child, resulting in disqualification from government benefits.
Use life insurance to fund a special needs trust
A policy type known as second-to-die pay after both parents’ death is useful when a special needs trust is a named beneficiary. Consult with a special needs planning attorney before purchasing a life insurance policy for this purpose.
IRAs and retirement plans are less effective when funding a special needs trust
These financial entity types have required minimum distributions that can negatively impact public benefits mean-testing. Funding a special needs trust with retirement benefits could trigger the income tax liability in total and upfront, reducing the net amount of support for the child.
Prepare a letter of intent (LOI)
This letter is an opportunity to personalize your hopes and dreams and describe the daily routines of your child’s life and with whom they interact. Writing a letter of intent is particularly important for a non-parent trustee or new caregiver. Information about the child’s unique needs and preferences, functional abilities, interests, routines, and critical medical information characterize how your child can live their best life.
Coordinate your estate plan with other relatives
Some family members will opt to name your special needs child as a beneficiary of their estate, which may negatively impact your plans for the child. To preserve all means-tested benefits available, all inheritances to the child should become part of a special needs trust. Another option is to create a third-party special needs trust. A third-party trust can receive bequests, gifts, and inheritances efficiently and cost-effectively without requiring the creation of multiple special needs trusts.
Discuss these tips with your attorney when creating a special needs plan for your child. You can identify which tips make the most sense for your situation. It may even become necessary for your special needs child to have their own estate plan. Depending on their capacity, a simple will and other basic documents like a durable general power of attorney, health care directive, and HIPAA release for their medical records will greatly benefit them. Creating a self-settled special needs trust for your child’s personal assets may also be useful. Meet with a special needs planning attorney to create a comprehensive special-needs plan for your child that will benefit them most.
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. We look forward to the opportunity to work with you.