Every Estate Plan has its nuances and “special” attributes to make it work for the people who it will serve. There are no two plans the same…nor should there be. When you have a “special needs” child, there are even more nuances that make your plan very specific for both today and tomorrow. If you have someone in your family with “special needs” there are a variety of strategies you should be aware of to help you provide the best care for them whether you are here or not.
Let me start by first defining what we mean when we use the term “special needs” child. These are children wo face a physical or mental disability and may require needs-based benefits, such as Medicaid or Supplemental Security Income (SSI). A special needs child is precious, like any other child. But the same planning won’t work for this unique child. Further, a lack of planning is even more problematic for a special needs child than it would be for a child without special needs.
Let’s start with an example
Joe has $900,000 in assets and three children, Amy, Bobby, and Charlie. Charlie has special needs. Let’s start by looking at what happens if Joe dies without a plan. In this situation, Joe’s assets would usually be split equally among his three children. If they are adults at the time of Joe’s death, they would receive the assets outright. While this may seem like the right thing to do, it could actually be problematic for many reasons.
Looking at Joe’s family situation, he may want to create different allocations for his children based on their needs. He may want to provide more for Charlie because of his greater need. Since his care will most likely take more time and resources, it makes sense to think about a different allocation for Charlie.
In addition, Joe may want to leave Amy or Bobby’s shares in a trust to provide additional protections against divorce, give additional asset protection, or simply protect their inheritances from their own immaturity. An outright distribution to Charlie is especially problematic as a special needs beneficiary. Charlie may be receiving SSI, Medicaid, or other needs-based benefits. If Joe dies without a plan, Charlie would inherit 1/3 of Joe’s assets outright (in most states). While the $300,000 of assets would be helpful to Charlie, it would also make him ineligible for these other benefits. He’d have to spend the $300,000 to cover his medical care and other things which his benefits would be covering.
The Solution...
The solution for Joe and his children is to have a plan. If Joe had a plan, he could not only have avoided these results, he could have been in control of how everything worked before he passed away. For example, Joe could have left the assets for Charlie in a “special needs trust.”
Amy or Bobby could be the trustee and distribute from the special needs trust for Charlie’s benefit. If Joe did this, Charlie would not be deprived of his needs-based benefits. Since Charlie’s inheritance would have been in a special needs trust, it would not have been counted as an available resource for Charlie. But, Amy or Bobby, as the trustee of Charlie’s special needs trust, could spend from it to enhance Charlie’s quality of life, by paying for his vacations, entertainment, classes, or other things to improve his quality of life. This would allow Charlie’s life to continue with as little disruption as possible after Joe’s death.
Joe also could contribute assets to an ABLE account which would complement a special needs trust. An ABLE account, also known as a 529 ABLE or 529A account, is a state-run savings program for eligible people with disabilities in the United States. Up to $100,000 in an ABLE account would not jeopardize Charlie’s SSI. The ABLE account would not jeopardize Medicaid benefits, regardless of its size. (There may be only one ABLE account for a beneficiary.)
What to do next...
A special needs child has many struggles in life. But these struggles can be minimized if you plan in a way that doesn’t jeopardize their needs-based benefits. There are a variety of options available which can significantly enhance their life when you are gone so you know they are going to be take care of in the best way possible.
If you have a special needs child, and don’t have some of these customer provisions in place, my recommendation is to get your attorney to put these together ASAP. If you don’t have an attorney you feel would understand your situation, feel free to CONTACT ME and I can give you some insight and assistance to get this done right away.
Even if you do have a special needs plan in place for your child, ask yourself one key question, “Is your life and situation exactly the same as it was when your plan was developed?” If it is, you are probably still in good shape with regard to your plan. If there have been any changes in your life (even minor ones) since your plan was designed, I would strongly recommend you get it reviewed to ensure it will do what you expect it to. Unfortunately, the majority of plans we see are not in sync with the current situation and won’t do what people expect they will do. Lower your Risk and get your plan reviewed to ensure it is going to do what you want (and hope) it will do.
I hope this has been helpful. If you do the proper work on this, I can guarantee you will have NO. MORE. TEARS. A little bit of effort here can help you sleep much better at night knowing you can still be involved if something happens to your (adult) children.