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Estate planning is important for any family, but when the family has a child with special needs, they need to plan even more carefully.
According to the Social Security Administration, a “disabled” or “special needs” child is an individual under the age of 18 who has a “medically determinable physical or mental impairment, which results in marked and severe functional limitations, and which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months.”
The intention of most parents is that upon their death the child receives all or part of their estate as well as continued or additional public benefits such as Medicaid/Medicare and Social Security. However, it is important to know that the child could lose these benefits if the parents do not have a dedicated Special Needs Trust in place to protect the child’s eligibility.
With a typical estate plan, assets pass directly to the child. The government then includes these assets when they calculate the child’s eligibility for social security and other aid. This often disqualifies them for all or part of their benefits. With a Special Needs Trust, the inheritance passes to the trust, not the child. Since the government does not include the assets in the trust when determining benefits for the child, the trust maximizes the public benefits available to the child.
A Special Needs Trust can be completed upon the parent’s death or while they are still alive. Depending on the structure of the trust, families can establish the fund, contribute, and transfer money throughout the child’s lifetime. The child is named as a beneficiary with an appointed trustee. Another way to structure the trust is as a testamentary trust, which takes effect upon the death of the parent. The child’s portion of the estate is then organized into the Special Needs Trust. Either way, the government does not consider the assets in the trust to determine government support.
As with any estate planning, a competent attorney can help you set up the trust and address the “what if” situations that often arise with unforeseen circumstances. For example, within the trust, the attorney can help you address details about:
The Child’s condition. The trust can define and include information on how the funds of the trust are to be used, depending on the child’s condition.
A Trust Protector. The trust protector is an individual, independent of the beneficiary and the trustee that has the right to amend the trust in certain situations. In many cases, this is a trusted relative or other third party.
Third-Party trustee. With the child as the beneficiary, and another responsible individual named as trustee, parents can also designate a 3rd party trustee, who is often another sibling, corporate trustee or attorney, to also help execute the Special Needs Trust.
Fulfilling IRS Requirements. The trust must include all essential language in compliance with IRS requirements. The document should be able to protect all assets if claims are made against the estate from public or private agencies either during the lifetime or upon the death of the child.
Spendthrift Provision. Having a spendthrift provision protects the principal and interest of the trust from claims against creditors. It also protects the trust from any situations that may arise in a divorce situation between the special needs child and a spouse.
Just as a revocable living trust protects an estate from probate court and taxation, a special needs trust protects a child’s assets and eligibility for public aid. At Gardi, Haught, Fischer & Bhosale LTD, we can guide you through the complexity of setting up a Special Needs Trust and ensure that your child retains the public benefits they need in all circumstances. Contact us at (847) 944-9400.
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