Families who do their best to protect their children with special needs often make several critical mistakes in developing their family plan. Lori Wolf and Mary Browning of Cole Schotz recently wrote an article for NJ Family about smart estate planning for a special needs child. Click here to read the article.
Parents of a young child with special needs may be unable to assess whether their child will actually be eligible to receive government benefits in the future because of an inability to determine whether the child will be able to be self-supporting and earn income through employment as an adult. For example, children with Asperger’s Syndrome, mild autism and other issues may become part of the mainstream. Locking assets up in a special needs trust for the child’s benefit where assets are to be used for luxury items only may not be the best way of utilizing the assets towards the child’s care in those circumstances. In this situation, the parent’s estate plan can create the flexibility to reassess the situation in the future. The trust could initially be structured as a lifetime trust for the benefit of the child. The trustee could have the ability to make income and principal distributions to that child for health, education, maintenance and support purposes for the life of the child.
If, in the future, the trustee believes that the child has the financial savvy and wherewithal to handle the investments on his or her own, the trustee would always have the ability to make discretionary distributions of principal to the child or to terminate the trust entirely and distribute the assets to the child.
Alternatively, if the trustee determines in the future that the child cannot be self-supporting and would be eligible to receive government assistance, the trustee could have the flexibility to convert this trust at the time of that assessment to a special needs trust. The conversion would not require court consent and upon conversion, the trustee would have the ability to use trust assets for luxury items (items not otherwise covered by government assistance) such as equipment, vacation costs and therapies and any other expenses to supplement (but not replace) government benefits.
The family should be careful in assessing who is the best individual to serve as trustee of this trust as this person will be responsible for making the determination as to how this trust should be structured going forward. This flexible structure permits the child to achieve his or her potential allowing the trustee to use trust assets to enhance the child’s lifestyle, while ensuring that the trust will not create a impediment to the best care of the child where government assistance is needed in the future.
Estate planning is an important aspect of an overall financial plan for any individual, but it takes on even greater significance for the parents of children with special needs. Parents of children with special needs face a number of unique estate planning decisions that should be carefully considered with professional assistance. These considerations include:
Naming guardians. If parents pass away, who will provide day-to-day care for the special needs child? This is a critical and difficult decision and must be provided for in the parents’ Wills.
Creating a special needs trust. A special needs trust is a trust that permits (but does not require) distributions to a child with special needs for a variety of reasons. Often, distributions are permitted only to supplement but not supplant monetary support that the individual is receiving from governmental benefit programs such as Social Security Disability Income (“SSDI”), Supplemental Security Income (“SSI”) and Medicaid. Failure to create a proper special needs trust can inadvertently disqualify the special needs child for these programs. The trust structure is also important to ensure that assets are not placed in a child’s hands before the child is responsible enough to invest and use the assets prudently (if ever).
The choice of trustee for a special needs trust is another critical decision. A trustee should have financial savvy, should have the parents’ complete trust, and should be or become knowledgeable regarding the child’s needs.
Powers of attorney. A power of attorney allows an individual to appoint people to manage his or her assets and make investment decisions on his or her behalf. Having this document avoids the necessity of having to go to court to get someone appointed as a guardian if an individual cannot manage his or her own affairs. A power of attorney is important for all individuals, but in a special needs situation, it is important for both the parents and the special needs child.
Parents of an adult child with special needs should also consider whether a power of attorney is adequate or if parents should be named as guardians of the adult child to better protect the child’s interests. If there is a concern that the child cannot adequately manage his or her own affairs at all or could be taken advantage of, a guardianship (full or limited) may be more appropriate.
Life insurance. Life insurance is typically used to ensure that sufficient assets are available to provide adequate income to the surviving spouse and to provide for the care of children until they finish schooling and are able to earn a living. In a special needs situation, life insurance can be used to fund a special needs trust to ensure there will be assets available for the rest of the child’s lifetime. This may be especially important if parents can no longer provide the care the child needs.
While estate planning is essential for any individual, for a parent with a special needs child it takes on additional significance.
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