This blog article discusses “Planning for Special Needs Child”. Raising a Child is the most significant experience of one’s life. Parenting is difficult, but one with many blessings. Replacing the primary caregiver or parent is an impossible task especially for a special need’s child. A Special needs child represents almost 19 percent of all children. See https://www.masters-in-special-education.com/special-needs/
Wikipedia summarizes that “special needs describes individuals that require assistance for disabilities that may be medical, mental or psychological. See Wikipedia. Special needs are a general term that describes conditions from mild to severe such as the following:
- Developmental Delays
- Medical Conditions
- Psychiatric Conditions
- Congenital Conditions
Parenting a special needs child is difficult and parents of a disabled child or adult find co-parenting challenging at best. Parents find services, gain understanding of their child, and set-up parenting in the best interest of the special needs’ child. See https://www.verywellfamily.com/what-are-special-needs-3106002
According to Autism Speaks, raising an autistic child costs approximately $60,000 per year. Planning for a Special Needs’ Child is a costly endeavor especially after the loss of a primary caregiver. According to the Special Needs Alliance, planning for a special need’s child requires skills and care. Often, a Special Needs’ Child will receive public assistance benefits such as SSI or Medicaid. Extreme care should exercise to maintain these public assistance benefits upon an inheritance. A major purpose in special needs’ estate planning is to preserve public benefits for the special needs’ child. https://www.specialneedsalliance.org/blog/estate-planning-for-families-with-special-needs-children-2/
LIFE INSURANCE BENEFITS
One of the first considerations is to establish the amount of money required to properly care for a special need’s child. Often, parents of a special need’s child will purchase life insurance benefits to provide for their special need’s child upon their death. There is a strong possibility that a special needs child will outlive their parent(s).
One of the goals of life insurance is to provide for the supplemental needs in addition to public assistance benefits. Life insurance is extremely important for the primary caregiver or parents of a special need’s child. The primary caregiver often will sacrifice their financial well-being to provide for their loved one. They have an intense love, which requires sacrifice for their special needs’ child. Often, an adult special needs’ child is incapable to securing long-term employment.
Care givers are expensive. A primary caregivers’ time is difficult to measure economically, but if one had to pay a third-party for these services, these caregiver services would be expensive. One of the roles of a financial advisor is assisting parents determine the proper amount of insurance required to replace lost income, wages, and to provide for third-party services, which may be required upon a parent’s death. The role of life insurance in planning for a special need’s child is to provide a funding source to pay for the excessive costs to properly care for a special need’s child. https://www.specialneedsalliance.org/blog/life-insurance-on-a-child-with-special-needs-benefits-and-challenges-2/
Life insurance benefits must not be paid directly to a special need’s child. Parents make a major mistake by naming other family members instead of the special need’s child. At a recent seminar, two attorneys and I discussed the consequences of disinheriting a special needs child. The primary concern about disinheriting a special needs child is a failed plan. Disinheritance of a special need’s child is ineffective.
DISINHERITING A SPECIAL NEEDS CHILD IS UNWISE
One of the panelists at a recent seminar for the National Business Institute gave an example of how a mother left an inheritance through her last will and testament to her two adult children and disinherited the disabled adult child requiring special needs. A Last Will and Testament must undergo the probate process where heirs can challenge the validity of a Last Will and Testament. Moreover, notices must be given to heirs and legatees.
Under this example, guardian ad litem was appointed by the probate court. Guardian ad litem is a probate attorney for a disabled adult or minor child. Guardian ad litem represents the interests of the wards, which cannot adequately represent themselves. Probate courts give special care and attention to the interests of a disabled adult or minor child (or special needs child).
At our recent panel, one of the attorneys told a story about how guardian ad litem was appointed by the court. The State had significant interests in this case as well because the disabled adults would be wards of the state. Wards of the state require great public financial assistance.
Guardian ad litem was appointed for the special needs child and a strong consideration was given to challenging the last will and testament. Second, the State and public policy discourages public assistance providing for a disabled adult when there are available financial assets to provide for adult care. Thus, estate litigation and unforeseen consequences occur, which makes disinheriting a special needs child a bad decision. In this case, there was a happy ending and the State agreed to allow the special needs child to set up a Special Needs Trust.
In addition to estate litigation, the adult children of the special need’s child could face a divorce proceeding or a creditor action threatening the adult special needs financial means. At a minimum, a divorce proceeding could significantly deplete a special needs child’s asset. Placing a special needs child’s asset in another sibling’s household is an exceptionally bad idea.
SELF-SETTLED SPECIAL NEEDS TRUST
A self-Settled Special Needs Trust is a type of special needs trust that utilizes the financial assets of a special need’s child. For example, in the above example, a self-settled special needs trust was set-up for the disabled adult that was less than 65 years old. One of the requirements is that the special needs child should not have reached 65 years old. Simply put, a Self-Settled Special Needs Trust is established by the special need’s child (or a representative on their behalf such as guardian ad litem or a guardian). Often, a Self-Settled Special Needs Trust is established when settlement proceeds are due to a special need’s child. A self-Settled Special Needs Trust is considered a “payback” trust because any left-over assets must be distributed to the State to payback the financial assistance that was provided to the disabled adult (special needs child). Thus, the primary funding method of this trust belong to the special need’s child (either directly or indirectly on their behalf).
There are three primary elements required to set-up a Self-Settled Special Needs Trust:
- The disabled special needs child must be under 65 years of age
- The primary source of the funds is coming from funds of the disabled, special needs child
- The funds must be paid back to Medicaid (or the State) upon the special needs child’s death to reimburse the State for the financial resources advanced to the special need’s child
In conclusion, a Self-Settled Special Needs Trust is usually established by a guardian, a parent, or a family member for the primary benefit of the special need’s adult.
THIRD-PARTY SUPPLEMENT NEEDS TRUSTS
One of the primary purposes of a Supplemental Needs Trust or otherwise known as a “Third-Party Supplemental Needs Trust” is to safeguard a special need child’s money especially the federal government. The benefit of a Supplemental Needs Trust is to protect a Special Need’s Child’s ability to maintain their public benefits.
Inheriting money and assets threatens a special need children’s ability to maintain public benefits such as Medicaid or SSI. A Special Needs Trust is set up by a third-party such as a parent, uncle, aunt, sister, brother, or another third-party for the benefit of a special need’s child or disabled adult. Typically, the third-party sets up the Special Needs Trust through their Will or Living Trust or otherwise known as an “Inter Vivos Trust”. On the alternative, a Supplemental Needs Trust may be set-up as a standalone trust.
One drawback to setting up a Supplemental Needs Trust through one’s Last Will and Testament is that it is not set-up until the person dies. A standalone Supplemental Needs Trust is beneficial because any family need can leave an inheritance to the Supplemental Needs Trust. The Special Needs Trust has a name such as the “Jane Smith Supplemental Needs Trust”. Hence, a Standalone Supplemental Needs Trust can be utilized by multiple donors to increase the funding of the Standalone Supplemental Needs Trust. Different family members can provide gifts to the Standalone Supplemental Needs Trust during their lifetime unlike a Supplemental Needs Trust created upon one’s death (and funded at that time).
Generally, funding of the Supplemental Special Needs Trust is done through a life insurance policy or otherwise assets. Supplemental Special Needs Trust is utilized to supplement the government benefits such as Medicaid or SSI that a disabled adult receives. The biggest difference between a Supplemental Special Needs Trust and a Self-Settled Special Needs Trust is the ability to distribute assets to a contingent beneficiary upon the death of the disabled adult. A Self-Settled Special Needs Trust must go back to the government and cannot distribute any assets to a contingent beneficiary until the government has been paid back in full. In contrast, a Third-Party Special Needs Trust is used to supplemental government benefits and the government does not have to be paid back. Thus, the Third-Party Supplemental Needs Trust has full power and control over the money in the Supplemental Needs Trust unlike the Self-Settled Special Needs Trust.
BACKGROUND OF GATEVILLE LAW FIRM
Sean Robertson and Gateville Law Firm concentrates in estate planning, special needs estate planning, and divorce special needs planning. Attorney Robertson has been a licensed attorney since 2004. Attorney Robertson is the Principal of Gateville Law Firm, which is a law firm that concentrates in family and divorce, estate planning, real estate, and business law. Attorney Robertson may be reached at 630-780-1034.