by Kevin G. Harvey April, 2012
Parents of a child with special needs face unique challenges when planning for that child's financial future. It is crucial that such planning for a disabled child's future involves your estate plan. An estate plan for a disabled child must be designed in such a way that money you leave for your child's care does not disqualify your child from receiving public assistance benefits.
For example, the two most common public assistance programs for the disabled, Social Security and Medicaid, include restrictions on the value of assets the disabled person can own and still qualify for disability payments and/or the provision of services. Social Security disability payments will be reduced and in some cases terminated if funds from other sources are used to pay for expenses for which the Social Security payments were intended.
All the work that parents go through to qualify a disabled child for Social Security disability payments and other public assistance benefits can be immediately undone if the parents die without an estate plan or their estate plan does not provide specifically for the child's disability situation. Some parents simply exclude the disabled child from their estate plan and count on the "good will" of the child's siblings to ensure that the disabled child's future needs are met.
The best estate planning solution for parents of a disabled child is the "special needs trust." A special needs trust ("SNT") can be created in a parent's last will and testament, in a revocable living trust, or as a stand-alone irrevocable trust. Regardless of how it is created, the SNT ensures that the resources parents leave for a disabled child will be used for that child's needs without disqualifying the child from continued receipt of public assistance benefits. Rather than replacing those benefits, the SNT is designed to supplement those benefits, which is why the SNT is also sometimes referred to as a "supplemental needs trust."
Both state and federal law recognizes the validity of the SNT as an estate planning tool for parents of a disabled child. However, the SNT must meet several requirements to keep the assets in the SNT and the income it produces from disqualifying the child from receipt of public assistance benefits. Thus, significant care should be used in drafting the language of the trust to ensure that it will not be viewed by government agencies as an ineffective SNT.
In addition to proper drafting of the trust, it is crucial that the trustee chosen by the parents administer the trust properly. Improper expenditures made by the trustee for the benefit of the disabled child can act as a benefit disqualifier even if the trust language itself is effective. Thus, the choice of trustee for an SNT is a particularly critical decision.
A well-designed SNT administered by an effective trustee will result in the money in the SNT being used to supplement the disabled child's benefits and thus enhance the child's standard of living. The benefits provided under certain public assistance programs continue to shrink as budget constraints impact those programs. It is therefore increasingly important that parents of disabled children carefully plan for their child's financial future.
While the SNT is often used to plan for the future of a disabled child, the SNT can also be an important and critical planning tool for a disabled spouse or any other disabled person for whom you wish to make provision in your estate plan. If you have a disabled loved one and would like to learn more about how you can provide for that person's secure financial future, please contact us for an appointment with one of our estate planning attorneys.