Children with disabilities present a unique challenge for parents who are looking to engage in estate planning. You must consider optimizing your estate to use, enhance, and enrich assets for your child, while also ensuring that your children remain enrolled in public benefits programs.
In order to meet both of these objectives, you’ll need to carefully plan. An experienced attorney can help with the planning as well as in the preparation of a special needs trust.
SECURING YOUR CHILD’S FUTURE THROUGH TRUSTS & ESTATE PLANNING
Merely discussing your child’s care with your family isn’t enough. With no will or trust, your state’s laws may dictate how your estate is distributed, which may mean that your wishes are not met and may put children with special needs in less than ideal situations.
This is why it is important to seek professional legal guidance on the right trusts to use in your estate plan. Avoid creating these legal documents on your own, using generic forms, or online templates. Each child with special needs is different and requires careful considerations that is unique to them and addresses the challenges they face.
CHOOSING THE RIGHT TIME TO SET UP YOUR SPECIAL NEEDS TRUST
Your special needs trust can happen while you are alive or at the time of your death.
Many parents set up the trust while alive (this is known as a “living trust” or “inter vivos” trust). A living trust has certain advantages:
- avoiding probate
- permitting other family members (for example, grandparents) to make trust contributions
- giving a co-trustee the opportunity to experience what it’s like to administer the trust.
Alternatively, a last will and testament can include setting up the trust, which is known as a testamentary trust.
UNDERSTANDING THE ESSENTIALS OF THE SPECIAL NEEDS TRUST
In order to qualify for means-tested assistance programs like Supplemental Security Income (SSI) or Medicaid, recipients must typically meet strict financial criteria. A special needs trust can assist an individual with disabilities in meeting these strict financial rules by keeping the assets within the trust separate from the recipient’s direct ownership.
TYPES OF TRUSTS
- Revocable trusts can usually be changed at any time, so is used to keep maximum control over the trust. Income tax considerations are not a concern with this type of trust.
- Irrevocable trusts cannot be changed once they are created, and are typically used to minimize income tax consequences. If the trust exceeds $1 million dollars, both federal estate and gift taxes may apply.
- Special needs trusts are usually irrevocable. These trusts may be first-party or third-party, depending on how you choose to fund it. Relinquishing control of the trust to a trustee safeguards your child’s government benefits, which can be crucial to maintaining their health and living arrangements.
It’s important to note that whether a trust is revocable or irrevocable has tax consequences. Money in the trust will not be counted toward income or asset limits by Medicaid or Social Security programs. This means that your child can continue to qualify for necessary support while also being able to receive gifts from family members that may enhance and improve their quality of life.
CHOOSING A TRUSTEE
Parents should select a trustee with great care. The trustee will act as the child’s money manager, and will ensure the proper supervision of finances in the event that the child’s parents pass away.
A letter of intent can be a powerful and helpful guiding tool that helps the trustee make decisions that honor your wishes and that will best serve your child’s unique needs.
When deciding on a trustee, remember that your child will benefit from you selecting a dependable individual. You may wish to select a person who is not a family member and who would be independent in carrying out this role.
You have several options, which include the following:
- A parent, sibling, or another relative (this can be risky)
- An experienced estate planning attorney or special needs planning attorney
- A financial institution or a trust company
- A nonprofit organization, particularly one with special needs experience
- Co-trustees, such as a trust company, acting in conjunction with a family member
Each of these options have advantages and disadvantages. With so much at stake, you should keep close counsel with your estate planning attorney or financial advisor before you select a trustee.
An attorney can tailor your estate plan to align with your wishes as well as the specific needs of your child. Protecting public benefits such as Supplemental Security Income (SSI) and Medicaid will help safeguard and secure your child’s long-term well-being. Setting up a special needs trust through the estate planning strategy is a way to accomplish this goal.
Bromlow Law, PLLC and Laura L. Bromlow, are dedicated to the practice of Elder Law and Estate Planning. Our practice focuses solely on working with clients in these and closely related legal fields. Laura L. Bromlow is a Certified Elder Law Attorney with the National Elder Law Foundation. Bromlow Law, PLLC strives to enhance communication among family members and loved ones and to keep them all out of conflict so they can stay out of court. We want to help you keep your close circle safe!
Please contact our office today at (281) 665-3807 to schedule a free consultation to discuss your legal matters. We look forward to the opportunity to work with you.