Estate Planning When You Have a Child With Special Needs0 USER TIPS ADD YOUR TIP
The purpose of estate planning is to ensure the swift and smooth transfer of your property to your heirs. But what if one of your heirs is a child with special needs, or another dependent with a disability? It is possible to provide for their long-term well-being—particularly with the right estate planning in place.
The best way for funds to flow
You want to pass your assets on to your child, but having them inherit a lump sum may actually hurt their overall finances, if that windfall means they no longer qualify for necessary government benefits, like Supplemental Security Income (SSI) or Medicaid. Both are calculated based on one’s means, and an inheritance can be part of those calculations.
Families find different ways around this potential pitfall. You could leave your estate to the child’s sibling or another family member and entrust that person to distribute funds as needed. But that leaves the chosen heir with a lot of responsibility and the potential to use the funds to his or her own benefit. There’s also the danger that the funds could be seized by the chosen heir’s creditors or as part of divorce proceedings. A more secure option may be establishing a special needs trust as part of a will or as a living trust.
What is a special needs trust?
A special needs trust is a fund overseen by an appointed trustee that can be used to help support the beneficiary. Because the beneficiary doesn’t have direct access to the money, it is not considered income and won’t affect their government benefit payouts. When setting up the trust, it’s vital to select the right trustee. Again, family members are an option but one you’ll want to consider carefully. Other options include a lawyer, a trust company, or a non-profit organization.
Whatever trustee you choose, he or she mustn’t give money outright to the beneficiary—that could jeopardize their benefits. Instead, the trustee should use the money to make purchases and payments on the beneficiary’s behalf. These can be for things like medical bills, therapies (such as physical, speech, or occupational therapy), education, recreational activities, vacation, vehicles, and home furnishings. The trustee will also be responsible for filing a tax return for the trust since they are considered separate entities by the government.
To set up the trust, you’ll want to consult a lawyer with experience in special needs trusts. An estate planning attorney or elder law attorney is a good place to start. You can browse attorneys using our service finder:
Choosing a guardian
Another issue to address—one that’s likely just as top of mind for parents as money matters—is picking a guardian for your child. While children under 18 must have a guardian, whether or not an adult needs an official guardian depends, of course, on their specific abilities.
If you deem one necessary, you’ll want to discuss all the physical, mental, and emotional needs of your child with the prospective guardian and come to an agreement before nominating them in your will. (It’s called “nominating” since a judge still has to confirm the choice after the parent’s death.) Proposed guardians must be over 18 and can be a family member or friend. It’s also possible to nominate a back-up guardian, on the off chance that the person you’ve picked isn’t able to be the guardian when the time arises.
Once that decision has been made, you’ll need to draft a letter of intent—a document for your child’s guardian outlining how you’d like him or her to be raised. (This is not a legal document but rather one you will prepare yourself.) The letter should include information on all aspects of their life: family history, daily schedule, medical needs, benefits, education, religious activities, social environment, and any other pertinent information. The document should be signed and dated and reviewed annually to make sure it accurately reflects your child’s evolving needs.