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Introduction | Family Needs | Estate Plans | Government & Charitable Programs | Checklist
If you're a parent, you're concerned about your child's emotional well-being, physical health, and financial security. When you're the parent of a child with special needs, these concerns are magnified. Of course, physical and mental disabilities can strike at any age, and the person with special needs may not be a child. But the goals for the families of any person with a disability are similar: to create a more certain future for that person, as well as for the entire family.
It's important to consider three main channels of assistance when you're trying to protect and care for a person with a disability: the family, state, and federal government, and charitable organizations. These sources of support should work together to make the person with special needs and those immediately involved in that person's care feel more secure.
Usually, parents are the primary caregivers of a child with special needs. Other family members, particularly siblings, also tend to become involved in the child's care. But if one or both parents die or become disabled, these other family members are often forced to assume primary care—whether they're ready for it or not. That's why it's important to have a plan to protect the well-being of all involved. Consider the following questions:
 | Who will become the new primary caregiver? |
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| Should the new caregiver be made guardian of the child? Should the same person acting as guardian of the child act as guardian of the property? |
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| Is the new caregiver able to provide emotional support and actual physical care as well as financial assistance? |
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| Are there other children in the family and what level of support will they need? |
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Estate Plans: Introduction
Estate plans are not just about protecting valuable possessions or leaving a legacy for heirs. It's a means of organizing an estate--whatever the size or value--to meet the needs of the entire family as efficiently and economically as possible. With the right strategy in place, an estate plan can help cover the ongoing expenses and special needs of your child or other family member in the event that something happens to the primary caregiver.
Estate Plans: 1) Leave All Assets to Special Needs Person
Parents may leave all of their property to the special needs family member, either outright or in trust. If the funds are left outright to the individual, all control over the funds falls to the individual. If left in trust, the trustee will be required to spend the trust assets for the individual's care. The trustee is not given discretion over this matter; he or she must distribute income or principal for the individual's care.
Pros
Independent financial existence. Theoretically, depending upon the size of the estate, the individual may be able to lead an independent, financial existence.
Cons
May need a guardian to manage funds. What is the family member's legal capacity? The special need may leave the individual without the capacity to manage funds or to take legal title. Placing the funds in trust will resolve this problem. If no trust is used and the individual does not have legal capacity, a guardian must be appointed.
Estate Plans: 1) Leave All Assets to Special Needs Person (Continued)
May limit access to charitable or government assistance. Giving the special needs person direct control over assets could limit his or her eligibility for government and charitable programs. Government assistance is often means based. If the individual is the outright beneficiary of the estate,the government or charity will count those funds as income for the purpose of means testing. Placing assets in a trust, directed to provide ordinary care, will NOT solve this problem. The government and many charities will view the trust as an asset in any means based test.
May subject assets to government claims. The government may require that assets be used to reimburse expenses the government has made on behalf of the special needs family member.
May cause family discord. Leaving all your assets to the special needs,family member will disinherit your other children. If those siblings are charged with caring for the special needs child, family discord could erupt. In addition, if the other siblings are minors, the parents must also consider their care in addition to the care of the special needs child.
Estate Plans: 2) Rely on Family and Government for All Needs
This is the complete opposite of the first plan: here, nothing is left to the
special needs family member, either outright or in trust. Instead, the remaining family will contribute to the care of the individual with the special need. By impoverishing the individual with a special need, they become more eligible for government or charitable assistance.
Pros
Receive government resources. Generally, the individual with a special need should qualify for government programs, allowing the family to take advantage of resources, funds or programs that might be lost if the individual had his or her own assets. The remaining family might then supplement the individual's financial needs from their own funds or from the assets received from the parents. This plan is often viewed as the only effective tool for many families. Caution must be exercised as the government may under some circumstances, count family gifts in means testing.
Estate Plans: 2) Rely on Family and Government for All Needs (Continued)
Cons
Dependent on other family members. The special needs family member will depend on other family members for all financial support not provided by the government or charities. Given that this is an informal arrangement, there is no way to be sure that funds will be used to benefit the individual with a special need. There is no way to be certain that the funds will even be there when the individual needs them. Divorce, other family obligations, death, inheritance laws, bankruptcy, judgments and other unforeseen situations can quickly deplete assets.
Government resources need to be supplemented. If the special needs individual is left impoverished, it is more than likely that he or she will qualify for government and charitable programs. However, it would be unwise to rely on those programs for the total financial and physical care of the individual. There's no way to be confident that government or private programs will be available to provide adequate assistance to the individual.
Government programs subject to cuts or run poorly. Will the individual with the special need be able to live as the parents wish, or will institutional care, run and managed by the government, be the only choice? In an era of reduced federal and state funding, what happens if the programs are eliminated or significantly reduced?
Estate Plans: 3) Government and Special Needs Trust
This may be the best plan for the family. Using a special needs trust in an estate plan can help accomplish a number of goals and may be the best solution to the long-term needs of the entire family. A carefully structured trust may provide security for the special needs family member while allowing the family member to qualify for government benefits. This plan provides the family with maximum flexibility, which allows the new primary caregivers to take those actions necessary for the individual's social, emotional, physical and financial needs.
Special Needs: Planning Considerations
A special needs person cannot have income or assets. To participate in government programs, a special needs person must not have any significant income or resources. Parents cannot give a special needs benficiary or a child's guardian any direct control over estate assets.
A special needs trust can provide additional care. Generally, parents want their special needs child to receive a level of care superior to the level administered in government programs alone. In a special needs trust, the trustee is instructed (via the trust instrument) to provide for their child's special needs beyond that offered in a government program.
Estate Plans: 3) Government and Special Needs Trust (Continued)
A trust is simply a device for holding, managing and distributing property. A trust is a traditional means of managing property for beneficiaries who are unable accept the responsibility for themselves. A special needs trust is designed to prevent inclusion of trust assets or payments in the government's means test.
In a special needs trust, the trustee is not required to expend any funds. The trustee holds the sole, uncontestable discretion over whether (and when) trust assets will be distributed for care. The trustee is even authorized to accumulate income if distributions are not currently needed. In addition to the discretionary power, the trustee is given instructions as to which expenditures the caregivers feel are most appropriate.
Government and charitable programs provide primary care. The special needs trust is intended to serve as a "supplement" to public assistance by providing "extras," such as additional clothing, travel opportunities and medical choices. Where a government program might provide only enough funds for the individual to receive one type of rehabilitative therapy, funds in a special needs trust can defray the cost of a more advanced facility. Where a government program might provide one level of medical care, a special needs trust can defray the cost of more aggressive treatment. The possibilities are endless.
Estate Plans: 3) Government and Special Needs Trust (Continued)
State Law Controls
The benefit of a special needs trust depends upon state law. You need an experienced, local counsel. States may protect special needs trusts from federal and state government claims. Asset protection and government benefits may be protected for a lifetime, although states may require a "payback" provision in the trust. A payback provision requires that the government be reimbursed for services before distributions can be made to other trust beneficiaries.
Funding a Special Needs Trust
1. How much is needed in the trust for the continued financial support of a special needs family member?
a. Take the average life span and add a cushion.
b. Consider how much costs will increase when primary caregivers pass away?
c. Costs change over years so review annually.
Administered in goverment programs alone in a special needs trust, the trustee is instructed (via the trust instrument) to provide for thier child's special needs beyond that offered in a goverment program.
Estate Plans: 3) Government and Special Needs Trust (Continued)
2. How can these funds be made available and delivered to the trust at the death of the parents?
a. Life Insurance proceeds can fund a trust at death.
b. Estate plans with life insurance allow bequests to other family.
c. Death benefits to the trust should be income and estate tax free.
3. How can funds be provided to other family members?
a. Types of policies to review include:
» Ordinary Single Life Coverage
» Second-to-Die Protection
» First-to-Die Coverage
Include your life insurance professional along with your other advisors in any decisions.
Estate Plans: 3) Government and Special Needs Trust (Continued)
Selection and Responsibilities of a Trustee
Choosing the appropriate trustee is vital. He or she will make judgments about care and financial management. Sometimes more than one trustee is selected with one trustee to manage the trust assets and another to serve as the beneficiary's advocate.
The individual trustee, in particular, should be acquainted with the beneficiary's skills and needs. If a special needs person is in a group home, for example, the trustee should visit the facility several times a year to determine the quality of care and the progress being made. The trust instrument itself should require the trustee to make at least an annual evaluation of the beneficiary's physical and emotional condition, educational programs, work opportunities, and social needs. If the trust distribution language is drafted broadly enough, the trustee will be able to participate in new programs and treatments for their particular, special need.
Government & Charitable Programs
State and federal government programs provide educational assistance, care institutions, medical facilities, and financial help. These programs are often based on need. The following three are the most well known:
| Social Security makes payments directly to the child based on either the parent's or the child's earnings record. |
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| Medicaid is state run and federally underwritten, and is designed to pay medical expenses. It's generally needs based and the "means test" used for qualification varies from state to state. |
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| Supplemental Security Income provides funds to people with disabilities below a certain level of resources and income. |
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Charitable organizations provide counseling, aid, medical assistance, home care assistance, and many other services.
Important questions to ask about government programs:
| Are you currently using government programs to assist in the care of the person with special needs? |
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| Do you plan to continue using government programs in the event of the primary caregiver's death or disability? |
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| Have you reviewed the "means tests" used to qualify for these programs? |
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| Do you feel confident that the level of care the program provides is sufficient for the financial and physical well-being of the person with special-needs? |
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Physical and Emotional Care of the Special Needs Individual:
Guardianship Issues
Financial Considerations: Government Programs
Other Family Issues
Estate Tax Issues
Planning Considerations
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