Estate planning is crucial for a family with a special needs child, who may benefit greatly from a special needs trust to supplement government benefits.
It can feel difficult to create an estate plan for children with special needs, because you don’t know what type of care he or she will need, or the type of government benefits for which they’ll be eligible when they turn 18. People frequently become overwhelmed about special needs planning because they don’t have a clear picture of what their children will need in the future.
A recent Forbes article, “Special Needs Kids Require Specialized Estate Planning,” says that if you have a child with special needs, it’s critical that you look at your planning options with your estate planning attorney and discuss your child’s health, capabilities and prognosis. You can then customize a plan that works for your child, with as much flexibility as possible.
Those with enough assets often would rather not to have their child get any government benefits and will set aside an amount to cover all the child’s living expenses in trust. Since the parents aren’t concerned with government benefits, the trust can be a discretionary trust that will distribute income and principal at the trustee’s discretion for the benefit of the child throughout the child’s life.
If there is a good chance the child will get government benefits, many parents create a special needs trust to supplement (not replace) the government benefits that the child will receive. The trust must be drafted so the child doesn’t become ineligible for the government benefits as a result of the gift or inheritance. Government benefits provide for the child’s basic needs like a place to live, so the special needs trust will pay the cost of extras, such as trips and entertainment.
If the parents can’t determine if their child will be eligible for government benefits, another option is for the parents to give their current trustees the authority to create a separate special needs trust down the line. Therefore, if the child is receiving benefits, the trustee can create the trust at that time, with the goal of preserving the child’s benefits. Our standard living trusts include those provisions in a “just in case” fashion.
Some parents go another route and elect not to create a special needs trust for their child and to disinherit him or her completely. The thinking is that the child can be supported solely by government benefits. Others go with a combination approach. They disinherit the special needs child and leave more assets to their other children, with the expectation that the other children will care for the special needs child. However, this isn’t always such a great idea. The siblings have no legal obligation to care for his or her sibling with special needs, just a moral one. If the child who inherited the bulk of the estate gets divorced or has money problems of their own, the assets are at risk of premature loss. Finally, the assets are liable to a creditor’s claim if the child is sued personally.
Estate planning for a child with special needs can be hard, so get a flexible plan in place that will provide peace of mind.
Reference: Forbes (March 27, 2019) “Special Needs Kids Require Specialized Estate Planning”