Does Your Estate Plan Put Your Child at Risk?

Most parents of children with special needs are well-versed when it comes to their child's government benefits. They know not to give the child any money outright, to establish a standalone supplemental needs trust to protect their child's assets, and they know all of the ins and outs of the SSI and Medicaid application processes. What many parents don't often think about is the effect that their own estate plan can have on their child's benefits.

Having a Valid Will or Estate Plan

The first thing for parents to keep in mind is that they must, without a doubt, have an estate plan. Parents who are often so good about getting their child's plan in order can balk at creating their own estate plan for a variety of reasons.

Without putting together your own plan, you are placing your child's benefits at risk. If you pass away without a valid will (known as dying intestate), your assets will be distributed according to state law. These laws will often leave a sizable portion of your estate to your children. In the case of a child with special needs, receipt of these funds could eliminate benefits that they rely upon. Therefore, it is essential that you prepare an estate plan that will take into account your child's unique circumstances.

Pouring Your Will or Estate Over to a Special Needs or Supplemental Needs Trust

The next thing to remember when assembling your estate plan is that, except in very limited circumstances, you should not leave anything directly to your child with special needs. Instead, your estate should flow through your own will into a supplemental needs trust for your child's benefit. A properly drafted supplemental needs trust will protect your child's benefits and allow your estate to be utilized as you intended without interference from outside sources. You will also have the opportunity to choose a guardian for your child in your will, another important decision that you should not leave up to chance or state law.

Disinheriting a Child with Special Needs

Sometimes parents will leave their entire estate to their children without special needs with the hope that those children will take care of their sibling with special needs. It's not necessary to disinherit a child with special needs. While your motives and trust in your children are well placed, this arrangement often leads to bitter family disputes and should be avoided if at all possible. Typically, the better option will be a separate trust that can hold your child with special needs share of your estate and free up the shares for your other children to be spent as they see fit.

Life Insurance and Retirement Plans

Another potential problem area is when parents name their children as beneficiaries of life insurance policies and retirement plans. These assets, which are not governed by the terms of your will, could easily pass to all of your children in equal shares if you are not careful about naming plan beneficiaries (this is a very common problem when your child develops a special need later in life after you have had these policies in place for years).

As you did in your will, you can place your child's share of these important assets into a properly configured supplemental needs trust. However, some complicated tax issues may have to be addressed first.

Check Estate Plans of Other Family Members

Finally, your estate plan may not be the only issue. Make sure to check with any relatives who may be leaving something for your children and make sure that they also speak with a qualified attorney before including your child with special needs in their estate plan.

This article is meant to get you thinking about your estate plan and the many options available to ensure your child's care when you are no longer there. If you don't have an estate plan at all, or are worried that your previous plan is not appropriate, your next step should be to contact a local special needs planning attorney.