Five Tips for Planning Your Estate When You Have Children with Special Needs

If you are considering estate planning and you have children with special needs, you should discuss your options with an estate planning attorney. It’s important to understand the factors that impact how your assets will be handled. In developing your estate plan, you can generally choose between leaving an inheritance via a will and establishing a trust. There are key differences that may impact your child’s eligibility for certain benefits.

Consider the Differences Between an Inheritance and a Trust

You could decide to leave an inheritance to your child with special needs. This may seem like a solid option if the child has the capability to manage these finances. However, this could reduce or eliminate government benefits. These may include Medicaid, Supplemental Security Income (SSI), and the Supplemental Nutrition Assistance Program (SNAP). These programs require that the eligible recipient have a limited amount of income and assets to qualify for benefits. Receiving an inheritance may push your child’s assets or income above this threshold.

You could decide to leave your whole inheritance to your special needs child’s siblings. The intent in such a situation may be for these siblings to care for your child with special needs. However, this poses a high potential for conflict within the family. The funds may not be used for their intended purpose. In some cases, the money may become part of a divorce settlement or be spent on other things.

You could decide to establish a special needs trust. The funds would be held in the trust and managed by a trustee. This means that the funds cannot be considered income, thereby preserving eligibility for public programs. The trust is structured in such a way that the child cannot override the trustee.

Understand the Different Types of Special Needs Trusts

Three main types of special needs trusts exist with varying implications. A first-party trust is funded by assets that belong to the beneficiary. This type of trust is often used if the beneficiary is expected to receive a sizable sum, such as an inheritance. Eligibility for programs like Medicaid is unaffected. However, in the event of the beneficiary’s death, there will be a requirement for the remaining funds to pay back amounts for Medicaid benefits received.

A third-party trust is similar to a first-party trust, although they differ in the source of the funding. A third-party trust is funded by assets that belong to someone other than the beneficiary. These could include parents, siblings, or other family members. A third-party trust also does not impact eligibility for public programs. In addition, there is no payback provision for Medicaid. This means that in the event of the beneficiary’s death, the remaining funds can be passed on to other family members. A third-party trust is commonly used for a beneficiary with special needs.

A pooled trust is also similar to a first-party trust, although it is managed differently. A nonprofit organization holds the funds in an account and manages the investment. They do this for multiple beneficiaries who each have their own account with the organization. There is a payback provision in the event of the beneficiary’s death. A portion of the remaining funds would also go to the nonprofit.

Determine Whether an ABLE Account Is Right for Your Situation

An Achieving a Better Life Experience (ABLE) account is a savings account that can pay costs like living expenses and education. The stipulations are that the beneficiary must have become disabled before age 26 and that a maximum of $15,000 can be contributed to the account annually. The ABLE account earns interest and does not affect the child’s eligibility for federal benefits. There is a payback provision for Medicaid benefits received in the event of the beneficiary’s death.

Think About Who Would Make the Best Trustee for Your Children

When establishing a trust, this decision is critical. The individual who serves as trustee will be making many decisions as they make sure your child is taken care of in your absence. People to consider may include siblings, close family friends, your attorney, or a financial advisor. In any case, this person should have the time and resources necessary to manage care for your child with special needs.

Discuss Your Situation with an Estate Planning Attorney

Estate planning can seem overwhelming and stressful. There are a significant number of details to understand and consider. The future implications of decisions you make today may not be obvious. In order to navigate this process successfully, you need to speak with an experienced estate planning attorney. They have the knowledge and understanding to guide you through the myriad of decisions before you. An experienced lawyer will be able to advise you about making the best decisions for your children’s future.

Contact Us Today

If you are setting up your will and have children with special needs, we can help. Call (319) 363-8199 to speak with one of Arenson Law Group, PC’s Cedar Rapids estate planning attorneys today. We will be glad to schedule an initial consultation to discuss your situation with you. Let us put your mind at ease as we guide you through your options. Call us now.