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The Heritage Law Center, LLC Blog

Special Needs Estate Planning Considerations

POSTED ON: May 23, 2016

If you are the parent of a child with special needs, you are likely faced with more challenges to overcome than you may have thought possible. You may be seeking resources to help you cope with wide array of hurdles from physical, developmental or emotional challenges. Parents of children with special needs are also faced with challenges from an Estate Planning perspective.

Consider these 4 unique estate planning challenges:

  1.  How to provide for your loved one without jeopardizing their eligibility for benefits.
  2. How to design an estate plan that supplements the child’s benefits and enhances their quality of life.
  3. How to make sure sufficient funds are available at a parent’s death to care for the child.
  4. How to provide for the proper supervision, management, and distribution of an inheritance for the child with special needs.

If you are the parents of a child with special needs, or if your child has been injured or disabled, you should work to ensure an inheritance or settlement does not threaten their entitlement to public benefits. If assets are given, inherited by or awarded to a person with special needs, their entitlement to public resources may be lost or reduced. And while public resources such as Supplemental Security Income (SSI) or Medicaid can be crucial to a child’s well-being, they do not provide enough benefit to ensure a comfortable and well-rounded life.

Supplemental Needs Trusts

A Supplemental Needs Trust can assist in the preservation of both the public benefits and additional inherited assets. There are two distinct types of Special Needs Trusts: a third-party created trust and a self-settled trust. Third-party trusts are created by a parent or other loved one for the benefit of a special needs child, while self-settled trusts can be created with the child’s own assets, often after an inheritance or settlement has been paid.

Both third-party created and self-created Special Needs Trusts provide supplemental benefits to a child who also receives SSI or Medicaid support and are intended to preserve eligibility for those benefits. To avoid disqualification, beneficiaries may not retain the right to revoke the trust or direct the use of the trust assets for their own support or maintenance.

The Trustee of a Special Needs Trust will manage resources for the benefit a person with special needs, while maintaining that person’s eligibility for public assistance benefits. However, while governmental agencies recognize Special Needs Trusts, they impose strict rules and requirements. It is highly recommended that any family considering a special needs trust consult an experienced attorney to guide them through the process of setting up the appropriate Trust.

Funding A Trust

In addition to creating the trust, families must consider how to fund the trust and at what levels. Funding must be realistic in relationship to the needs of the child. If a family has insufficient resources to adequately fund a trust, one option may be to consider funding with life insurance. A trustee who will properly manage the trust assets will need to be chosen. The choice of the trustee is a very important decision and in many instances a family member should be designated.

The ABLE Act

A new option has been made available to help people with special needs and their families save for the future while preserving eligibility for public benefits. The 2014 Achieving a Better Life Experience (ABLE) Act created a new type of tax-advantaged savings account. The money in these accounts can be used for qualified disability expenses, and does not apply to the income and asset limits for SSI and Medicaid. To open an ABLE account, an individual must have become disabled before age 26.

Individuals may have only one ABLE account, and total contributions to that account, including from family members and friends, are limited to $14,000 per year. The funds may be used for expenses such as housing, education, transportation, health care and assistive technology.

For more information and guidance on Estate Planning related to caring for a special needs child, contact Matthew Karr at The Heritage Law Center at (617) 299.6976.