10 Tips to Consider for Special Needs Planning

Takeaways

• Careful planning for the future of a loved one with disabilities is crucial.
• Consider using legal entities such as a special needs trust to protect their ability to qualify for government benefits while meeting their spending needs.

Careful planning for the future of a loved one with special needs is one of the most critical life-protecting tasks you will ever provide for them. To approach the planning process in a meaningful and comprehensive way, consider the following 10 tips. These basic tips can help address many of the challenges that a family member with a disability may face without having a negative impact on their ability to qualify for government programs or any other loved ones you are providing for in your estate plan.

1. Carefully Consider Asset Division Between Children

Nothing requires you to treat each loved one equally. Consider the potential needs of your loved ones and provide for them according to their needs. Typically, this means that a child with a disability who requires more assistance throughout their lifetime may need greater support to thrive. Explain this to your other children who are blessed with good health and can lead self-sufficient, productive lives without equal inheritance.

2. Don’t Disinherit Your Loved One With Disabilities

Disinheriting your child with disabilities may protect their ability to qualify for government benefits such as Supplemental Security Income (SSI), Medicaid, and Section 8 housing because these benefits are means-tested programs with strict asset and income limits. However, more sophisticated solutions exist. For instance, legal entities like a special needs trust can meet certain discretionary spending needs without interfering with your child's eligibility for public benefits programs. A special needs planning attorney can outline the options that will allow your child to inherit without putting their benefits at risk.

3. Choose the Right Trustee for a Special Needs Trust

This trustee will need “sole and absolute” discretion, a standard legal requirement when determining beneficiary eligibility for SSI or Medicaid. Having an adult sibling serve as successor trustee may seem like a natural choice. However, this can cause a conflict that will negatively affect the future of your child with special needs. Other options include the following:

• Naming an attorney or financial institution as a professional trustee or co-trustee
• Providing the trustee authority to delegate specific tasks to a professional representative to receive additional expertise
• Naming a family member but also designating a trust advisor for assistance with investment decisions
• Appointing a trust protector with authority to remove the trustee if they are acting out of self-interest and replace them with a corporate trustee

4. Understand Taxes and Allocation of Expenses

How you allocate taxes and expenses among inheritors needs careful consideration. If you create a special needs trust during your life or upon your death, specify if your estate taxes apply to the trust, will receive charges against that trust, or be allocated between the remaining shares. Requiring a special needs trust to pay some of your estate taxes reduces funds available to your loved one with special needs.

5. Prepare for Incapacity

Including a provision in your durable financial power of attorney permitting your agent to make nonsupport, discretionary distributions for the benefit of your disabled child allows the agent legal authority to establish and fund a trust for the child. Also, consider authorizing this agent to create a sole benefit trust for your child in case you require nursing home care. Transfers to this trust type may assist in a parent’s eligibility qualification for Medicaid while preserving assets held in trust for the child.

6. Review Beneficiary Designations and Ownership of Assets

Ensure that your assets do not inadvertently pass directly to your child with disabilities. This can result in disqualifying them from government benefits.

7. Use Life Insurance to Fund a Special Needs Trust

When a special needs trust is a named beneficiary, a policy type known as second-to-die insurance or survivorship insurance pays after both parents’ death can be useful. Consult with a special needs planning attorney before purchasing a life insurance policy for this purpose.

8. IRAs and Retirement Plans May Be Less Effective

These financial entity types have required minimum distributions that can negatively impact public benefits mean-testing. Funding a special needs trust with retirement benefits could trigger the income tax liability in total and upfront, reducing the net amount of support for the child. Read more in a related article about the best ways to pass retirement benefits on to a child with special needs.

9. Write a Letter of Intent

This letter is an opportunity to personalize your hopes and dreams and describe the daily routines of your child’s life and with whom they interact. Writing a letter of intent can serve as a particularly important resource for a nonparent trustee or new caregiver. Information about the child’s unique needs and preferences, functional abilities, interests, routines, and critical medical information help characterize how your child can live their best life.

10. Coordinate Your Estate Plan With Other Loved Ones

Some family members may want to name your child with special needs as a beneficiary of their estate. However, this may negatively impact your plans for the child. To preserve all means-tested benefits available for your child, all inheritances for them should become part of a special needs trust.

Another option is to create a third-party special needs trust. A third-party trust can receive bequests, gifts, and inheritances efficiently and cost-effectively without requiring the creation of multiple special needs trusts.

Discuss the tips listed above with a special needs planning attorney in your area. They can help you identify which ones make the most sense for your family's unique situation. Your child may even benefit from having their own estate plan.

Depending on your child's capacity, a simple will and other basic documents such as a durable power of attorney, health care directive, and HIPAA release for their medical records will greatly benefit them. Creating a self-settled special needs trust for your child’s personal assets may also be useful. Meet with a qualified attorney to create a comprehensive special needs plan for your child that will benefit them for the long term.