For many people, the basics of estate planning are simple enough, but for those families with loved ones who are disabled or have special needs, the estate planning process is more involved – and definitely more critical.
The latest statistics show that five percent of minor children have some sort of disability, and the burden of caring for these children make estate planning essential. In addition to specialized health care, these children usually need special schooling and intensive therapy, all of which comes at a cost.
Here are some tips for parents facing the need to plan not only for their own financial future, but for that of a special needs child:
Deal with expectations.
Parents need to think about the kind of life they envision for their child. Will the child have a shorter life span? Will he or she be able to work or live independently? The answers to these questions will form the foundation of your plan.
Determine eligibility for public benefits.
In order to meet eligibility requirements for Medicaid and Social Security Supplemental Income programs, a person with special needs or other disabilities must have limited income and assets. This makes it imperative that a child who could benefit from these services not have any assets titled in his or her own name – meaning they should not be listed as beneficiaries on life insurance policies, retirement accounts or plans, in trusts, wills or pensions.
Create a special needs trust.
A special needs trust can be established by a parent or grandparent for the care of a child or grandchild of any age in lieu of leaving an inheritance, which would likely disqualify a special needs person from receiving necessary government assistance.
Parents of a special needs child who also have other children are often tempted to leave their assets to the other children with the understanding that they will take care of their disabled brother or sister. However, if one of those children gets a divorce, files bankruptcy or pre-deceases the disabled child, those assets could go to an ex-spouse, creditors or others. To prevent this from occurring, parents should divide assets among all their children equally but place the disabled child’s assets in a special needs trust and add to it with a permanent life insurance policy.
Assets placed in a third-party special needs trust are not counted as assets toward public benefit program eligibility, but these trusts are governed by strict rules so the counsel of an experienced estate planning attorney in establishing this trust is necessary. Parents do not need to fund a special needs trust with cash while they are alive; they can do so through other assets after they die.
Schedule an Estate Planning Session with Jill Gregory to learn more and create an estate plan that ensures your special needs child will be taken care of in the best way possible.