Estate Planning for Your Special Needs Child
Special Needs Estate Planning: What You Need to Know
Estate planning can be challenging no matter what, but it becomes even more complex when providing for a special needs child. It is important that you, your family members and loved ones understand how estate planning can potentially impact your child. Well-meaning loved ones that leave money to your special needs child in their will or trust may actually do more harm than good. Any financial benefits bequeathed to a special needs child can cause his or her state or federal benefits, once the child is an adult, to be decreased or taken away altogether. There are many government programs available to assist special needs children. As minors, the children will receive benefits. However, once those children become adults at age 18, they may no longer qualify for assistance if they have substantial funds or assets in their names. Substantial can mean more than $2,000. The threshold is quite low.
This goes beyond just naming your child as a beneficiary in your estate plan. You also need to take care when naming your beneficiaries on accounts such as IRAs and 401(k)s. Life insurance policies should not name your child as a direct beneficiary either, as this can result in the loss of assistance such as Medicaid and Supplemental Security Income (SSI). You should also take care with any secondary education funds that are set up on behalf of your child. For instance, a Uniform Transfer to Minors (UTMA) account becomes the property of the child when he or she turns 18. Any money that has been set aside under that fund technically belongs to the child on his or her 18th birthday. Again, these funds can hurt your child’s government benefits and should not be done lightly. It is important that you use this information to carefully craft your estate plan and that you ask family members to do the same.
Aside from carefully crafting your estate plan, it is also important to take the necessary legal steps to establish guardianship for your special needs child. In the state of Arizona, you can begin the process of establishing guardianship when your child is 17.5 years old to take effect at age 18. Many parents start the process when a child turns 17.5 years old so that there is no gap in “coverage” between being a parent one day before the child’s 18th birthday and being a guardian on that birthday.
You also need to be prepared for a time that you are not able to provide care for your child, just in case. In addition to establishing guardianship for your child, you also need to identify and establish a second person to serve as guardian in the event you are no longer able to fulfill this role. You should carefully consider who would be the best guardian for your child in the event of your incapacity or death and make sure that he or she is designated as such in your estate plan. Secondly, it can be very helpful to create a letter of intent. While a letter of intent is not a legally required or binding document, it can give critical information to the successor guardian. A change in guardianship may be incredibly disruptive for your child and it is important that you convey your child’s likes, dislikes, routine, challenges, etc. The more information you give about your child the more you can help ensure the continuity of his or her care in the event or your death or incapacity.
Special Needs Trusts
A Special Needs Trust (SNT) can be utilized to protect a disabled adult child’s government benefits. A parent’s assets are not taken into account when determining an adult child’s eligibility for programs such as Medicaid, SSI and housing subsidies. However, once the child turns 18, he or she is considered an adult and any assets he or she owns can and will be considered when establishing benefits. This is where a special needs trust can help. When assets are “owned” by the trust, they are not counted against your child when calculating benefits. Your child can still benefit from the trust and the funds can be used to assist with any items not covered by government assistance. There are multiple types of special needs trusts, including first-party SNT, third party SNT and pooled SNT. Each SNT is held to different standards and regulations. When considering creating a special needs trust, it is highly advisable to consult with an experienced estate planning attorney. Your choice of trust type is very important and you want to make sure you utilize the best trust type for your individual situation. For instance, a first-party special needs trust is irrevocable, meaning it generally cannot be changed or altered once it is established. If you are not already well versed in SNTs, seek the advice of a legal professional.
Help With Estate Planning for Your Special Needs Child
If you need an estate plan that includes provisions for your special needs child, please call me. I will help you establish a plan that provides for your child without harming his or her government benefits. Your estate plan needs to be detailed and legally executed to ensure your child’s financial, physical and emotional needs are met and continuity of care established. If you don’t have a comprehensive estate plan in place, it is imperative to get started now.