Special needs Estate Planning
Jenny focuses her practice in special needs planning. She not only understandings the complexity of special needs planning, but also understands the challenges parents face as special needs parents. Jenny has two children with disabilities (age 22 and age 9). This personal perspective provides her a unique perspective in providing estate planning services.
When you have a child with special needs, you worry about how your child will live independently and/or what the future will look like when you and your spouse are no longer living. If your loved one (family member) is living with a disability, it is critical that you properly and adequately plan for his or her needs. McInerney Law understands these needs personally - firsthand - and provides a variety of tools to clients to ensure a full and thorough plan is in place.
What is Special Needs Planning?
Special needs planning is estate planning for individuals who have a family member of any age with a disability. Because the cost of care for a person with a disability is high, it is important for families to take advantage of all sources of funding available for that care-both public and private. Under current Social Security and Medicaid regulations, a direct gift or inheritance of over $2,000 to a person with a disability would make the person ineligible for important “means-tested” government benefits, such as Supplemental Security Income (“SSI”) and Medicaid. For this reason, an individual with a disability who either presently receives or may qualify later for these means-tested benefits (which could be the person’s only source of health care insurance), or who may participate in educational/vocational programs available only to those eligible for government benefits, should not receive an inheritance or gift outright or in a traditional trust. Instead, the inheritance or gift should be directed to a special type of trust called a special needs trust (“SNT”) that would not count for eligibility purposes for means-tested government benefits programs. Proper estate planning can ensure financial independence throughout the disabled individual’s lifetime.
Who is a good candidate for Special Needs Planning?
Individuals with any type or degree of physical, mental, or developmental disability can benefit from special needs planning. Anyone whose child has a disability potentially affecting his or her ability to support himself or herself or obtain his or her own medical insurance is a good candidate. Also, a person whose spouse or parent has developed a disability later in life should consider special needs planning to maximize sources of both public and private funding to provide a higher standard of care for a family member in need. An SNT becomes the vehicle by which a parent can provide for a child’s (or loved one’s) future cost of living and care giving arrangements and provide an effective way for other family members to give to the SNT for the child, all while keeping government benefits available for primary funding. Because current public benefit programs for persons with disabilities do not provide coverage for all of their basic living needs (such as dental care), it is critical to have a source of private funds to supplement these public sources.
What kinds of estate planning options are available in Special Needs Planning?
Special needs planning options vary greatly. Each family’s goals, personal and financial situation must be considered in designing a personalized and effective plan. The SNT might be a separate document that could be funded during the parent’s lifetime, or it might be part of the parent’s will and established at death. Many parents of a special needs child will establish a separate SNT for the child and have a Will that directs the child’s inheritance to the SNT at the parent’s death. This kind of SNT is sometimes referred to as a “Third Party” SNT, since it is designed to only receive assets of persons other than the child. A grandparent or sibling or favorite aunt or uncle could make gifts to this trust during the parents’ lifetime. Often parents designate the SNT to receive life insurance or the beneficiary of investment accounts after their deaths. Some parents prefer to begin funding the SNT during their lifetimes, while others only fund it only after both parents are gone. For parents who do not anticipate gifts for the child from other family members, the SNT can be part of their Wills. Other considerations in special needs planning concern naming a support team for the beneficiary, naming a guardian and conservator for the child in the event of a parent’s death or incapacity, and possible gifts that would benefit both the child and a favorite charity.
“Jenny made the planning process enjoyable. She thought of things and situations I had never contemplated. I know my boys have a solid, complete, and well structured plan.”
Sophia Leece, Homewood, AL
How do special needs trusts Work?
Special needs trusts are irrevocable trusts that preserve the beneficiary’s eligibility for need-based government benefits because the trust—not the beneficiary—owns the assets. Such trusts can pay for quality-of-life expenses outside the scope of government assistance, such as education, entertainment, and travel, so long as the funds are used only for substantiated expenses not covered by government benefits. Once the trust is established, an EIN is assigned to the trust and it can begin receiving funds/gifts. Once the first gift is complete, spending on the beneficiary can begin. It is important to note that if the beneficiary is already receiving government benefits, the trustee shall notify the Social Security Administration of the new trust instrument and identify where the funds originated.
FAQs
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Many individuals with a disability enjoy a typical life expectancy. Therefore, many will survive their parents and siblings. For this reason, it is important that families prepare a plan for the care and supervision of their loved one. Planning is not an option, it is a necessity.
Futhermore, an individual who is receiving government needs-based benefits is at risk of losing those benefits if he/she receives an inheritance that exceeds $2,000.
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No. Since the person with special needs cannot have more than $2,000 of assets in their name to qualify for certain government benefits, the Special Needs Trust is essential to hold and protect assets.
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Yes, problems can arise that they will have no control over. Assets left to another person, legally belong to them. The assets are exposed to loss due to lawsuits, creditors, divorce and their death.
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A detailed document known as the “Letter of Intent” is used. It provides information for future care providers such as daily needs and activities, diet, abilities and skills, medical care and your desires for the quality of life for your person with a disability
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Anyone whom you feel you can trust to fulfill your wishes and provide the best care and attention for your loved one. A trustee must be chosen carefully with consideration for his or her age relative to that of the person with special needs, knowledge and empathy for the circumstances and a willingness to handle the decisions related to managing the trust.
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1. Failure to Start with a Life Care Plan.
A life care plan can be designed by a professional, a parent, or another family member with the assistance of professionals. The life care plan should begin by identifying the future needs of the child with a disability and establishing a standard of living that the parent wants for the child with a disability. The cost of the standard of living should then be established. This would include a discussion of immediate cash needs such as a home, a vehicle, repayment of debt, clothing and shoes, a computer, a cell phone, etc. A monthly budget should then be established, including shelter, transportation, and personal needs. How will all of these needs be met financially? The child with a disability may be receiving some benefits that can pay some expenses, and some can be paid for by accessing the trust. Assuming the trust can pay 3.3% per year for annual maintenance of the child with a disability, how much will be required to fund the trust? Does the parent have sufficient assets? If not, will whole life insurance be required?
2. Leaving Assets Directly to Your Child with a Disability.
Many parents have a will leaving assets outright to their children, including their child with a disability. This mistake renders the child with a disability ineligible for means-tested public benefits, including Supplemental Security Income (SSI) and Medicaid. Best practice dictates that the parents leave the assets to the child with a disability in a special needs trust to maintain the child’s public benefits.
3. Dividing Assets Equally Among All Children.
The instinct of parents is to divide their assets equally among their children on death. Parents love their children equally and want to treat them fairly. The problem is that if there is a child with a disability who is unable to work and support themself, that child will have greater needs. Best practice dictates determining what the child with a disability may need and carving that out first, then dividing any remaining assets among the healthy children who can support themselves. This often requires the purchase of whole life insurance.
4. Failure to Access Public Benefits.
Many parents who have a child with a disability apply for SSI for their child with a disability before the child attains age 18 and are rejected because their household income and assets are too high. The parents do not realize that after age 18 the income and assets of the parents are no longer deemed to the child with a disability, and another application should be made to qualify the child for SSI. In some states, an individual receiving SSI automatically receives Medicaid. Supplemental Nutrition Assistance Program (SNAP, formerly Food Stamps), Federally Assisted Housing, and many other state programs may also be available.
5. Failure to Maximize Public Benefits.
Parents often fail to maximize public benefits available to a child with a disability. Parents commonly provide food and shelter for their child with a disability, which will cause the child to receive a one-third reduction in their SSI payment. The one-third reduction in the SSI payment for 2024 amounts to $313.33 per month. By executing a lease with the child with a disability and receiving payment from the child’s SSI payment for food and shelter, the SSI payment can be maximized. Parents often overlook other public benefits that may be available, including those set forth previously in the paragraph titled Public Benefits. These should be explored, and eligibility for these public benefits should be considered.
6. Failure to Obtain a Living Will and Power of Attorney for a Child with a Disability.
Often a guardianship in the future can be avoided, assuming the child with a disability has capacity, by having the child execute a medical power of attorney and financial power of attorney appointing parents or other family members as health care representative for purposes of making medical decisions or as agent under a power of attorney to make financial decisions.
7. Obtaining Guardianship When Guardianship is Not Necessary.
In many instances, once a child with a disability is age 19 and has limited ability to make decisions, the child may be able to make decisions with the support of a person such as a parent, family member, friend, or organization. An alternative to an unnecessary guardianship would be a supported decision-making agreement.
8. Failure to Obtain Guardianship.
Many parents fail to obtain guardianship for their child with a disability upon the child attaining age 19 when that child is incapacitated and unable to make decisions. Without guardianship or authority under a medical or financial power of attorney, the parent has no legal authority to make medical or financial decisions on behalf of the child. Parents could be appointed guardians of the person or guardians of the property.
9. Relying on Other Family Members to Take Care of the Child with a Disability.
Other family members, particularly siblings, are often ready, willing, and able to assist with providing care for a person with a disability. However, when the time comes to provide that assistance, problems often arise. Frequently, there is an understanding that the child with a disability will live with a sibling. Sometimes this works; often, it does not. Occasionally, the sibling’s spouse strenuously objects, and sometimes the sibling realizes this undertaking would be enormous. Often, a sibling is willing to offer limited assistance, such as working with a disability organization or trustee, to ensure that the life care plan developed for the child with a disability is implemented correctly. In most cases, this is a realistic target.
10. Waiting.
Many clients wait too long to plan. The longer a client waits to plan, the less likely it will be that sufficient assets will be set aside to provide the necessary standard of living for the child with a disability.
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Managing a special needs trust can be difficult for those who are unfamiliar with disability laws and prudent investor rules. It is important to consult with professionals for guidance.