Estate Planning Opportunities for Families with Special Needs Individuals

Estate Planning Opportunities for Families with Special Needs Individuals

Unfortunately, too many families overlook the importance of carefully crafting legal and financial safeguards to protect their special needs children as they grow into adulthood. Many times, families have simply entered into a “pact” with one or more of the siblings of the special needs child whereby those children have “promised” their parents that they will take care of their special needs sibling.

There Are Challenges for Estate Planning Involving Special Needs Children

Families with special needs children often overlook five essential estate planning techniques: 

  1. Determining qualifications or eligibility for special needs children for government benefits.
  2. Calculating appropriate funds to fulfill the needs of the disabled child in addition to support from governmental programs.
  3. Determining if a special needs trust would most effectively fulfill the special needs child's support.
  4. Selecting an appropriate trustee of a special needs trust.
  5. Selecting an attorney to create a trust that will reflect the desires of the parents.

Mastering these techniques can save a family from financial hardship and ensure the special needs child's well-being well beyond the parents' death.

Families with special needs children focus mostly on two primary methods when planning for the estate of their special needs child. The first typically involves establishing a guardian and conservatorship where a bank or other corporate entity would be in charge of the disabled person's finances (conservatorship), and a family member would be legally responsible for the physical care of the child (guardianship). While these methods seem practical to families, they can lead to unnecessary expenses that substantially burden the family in the future. In addition to annual court costs, attorneys assisting those appointed as guardian conservators charge substantial fees for their services, which can recur on an annual basis.

An alternative to the first option that is typically followed to avoid some of the negative consequences of that option is for a family to establish a special needs trust (SNT) as an alternative planning tool. Designed by the government as a specialized trust for families with special needs children, an SNT ensures a family's assets are allocated appropriately to a special needs child, while minimizing attorney fees and corporate and fiduciary management fees.

Basic Provisions of an SNT

An SNT ensures that a disabled beneficiary who receives Supplemental Security Income (SSI) or Medicaid benefits remains protected upon receiving an inheritance. Eligibility for SSI or Medicaid is limited to individuals whose resources, including bank accounts and investments, do not exceed $2,000. Therefore, an individual qualifying for these government benefits may lose this assistance upon receiving an inheritance of $2,000 or more. SNTs limit this danger by establishing a trust to be administered by an independent trustee for the exclusive benefit of the disabled beneficiary. Consequently, the SNT preserves parents' rights to design their child's financial welfare without sacrificing necessary government health and financial protections and benefits.

The primary philosophy of an SNT is to allow a trustee with "discretion" to provide additional funds to support the needs of a special needs child after the parents are deceased. The "discretion" is not mandatory and, therefore, the assets in the SNT are not countable or included in the special needs child's estate for purposes of disqualifying that child from government benefits.

Obviously, in addition to those elements of the trust regarding what types of things a trustee has the discretion to provide to a beneficiary, the appointment of an actual trustee is also a very important decision as part of the establishment of an SNT.

Trustees are responsible for keeping an accurate account of funds, investing assets, making proper distributions of funds to the special needs beneficiary, and preventing the special needs individual from using the funds on resources such as food and housing that will disqualify him or her from receiving public benefits. Additionally, trustees, in most states, must comply with the "Prudent Investor Act" whereby the trustee is held to a standard regarding the investment of assets in the SNT.

Many families designate family members to act as trustee of the SNT. A danger in selecting a family member as a trustee is that that family member may not be familiar with the special needs child's actual needs, or may lack ethics or responsibility to administer the trust in the best interest of the special needs individual beneficiary. Many families often assume only a family member knows the disabled individual well enough to understand his or her unique needs, and only a family member can act in the individual's best interests. These fears are often warranted when attorneys lack proper understanding of special needs trusts and how they are administered differently from regular trusts and subject to different restrictions and benefits.

Conclusion

Selecting an appropriate SNT for your special needs child is one of the most important things you can do to preserve his or her future. To avoid the common pitfalls many families face, it is essential that you obtain appropriate legal advice as to the different kinds of SNTs that are available and someone who can create a trust that reflects your long-term intentions.