Why Is a Special Needs Trust Important for Your Child’s Future?

When you have a child with special needs, ensuring their future care and financial security is a top priority. One way to achieve this is by setting up a special needs trust (SNT), which allows you to provide for your child without jeopardizing their eligibility for government benefits, such as Medicaid and Supplemental Security Income (SSI).

What Is a Special Needs Trust?

A special needs trust is a legal document that holds assets for a beneficiary with special needs. The purpose of this trust is to supplement, not replace, the benefits your child receives from government programs. With an SNT in place, you can ensure that your child has access to additional resources to improve their quality of life, while preserving their eligibility for vital services, as Special Needs Alliance reports.

Who Should Be Involved in a Special Needs Trust?

Setting up a special needs trust involves three key parties:

Donor: The person who establishes and funds the trust, typically the parent or guardian.
Trustee: The individual or entity responsible for managing the trust and using the funds appropriately.
Beneficiary: The person with special needs who benefits from the trust.

You may also name a remainder beneficiary, who will receive any leftover assets if your child passes away.

Why Is It Necessary to Set Up a Special Needs Trust?

You might wonder if leaving money directly to your child or a trusted family member is enough. Unfortunately, doing so could disqualify your child from receiving essential benefits. A special needs trust helps you avoid this risk by allowing you to direct your estate to your child without affecting their eligibility for government programs.

The trust can cover a variety of expenses that improve your child’s quality of life, such as:

Personal care attendants
Special therapies or treatments
Adaptive equipment
Education and recreational activities

What Types of Special Needs Trusts are There?

There are three main types of special needs trusts:

Third-Party Special Needs Trust: Parents or other relatives establish a third-party special needs trust to benefit a child with special needs. These trusts do not require Medicaid payback provisions.
First-Party Special Needs Trust: The beneficiary can establish a first-party SNT using funds from an inheritance, legal settlement, or other source. Medicaid may receive the remaining assets upon the beneficiary’s death.
Pooled Trusts: Nonprofits manage pooled trusts that combine assets from multiple sources, such as third and first-party funding. A pooled trust is a good fallback option when the two previous options aren’t available.

How Should You Fund a Special Needs Trust?

A trust needs adequate funding to serve its intended purpose. Most parents fund the SNT upon death through life insurance, retirement accounts, or savings. However, you can contribute to the trust during your lifetime if you have sufficient resources. Knowing that the trust is funded and ready to support your child’s future needs, this strategy can offer peace of mind.

What are the Responsibilities of a Trustee?

The trustee plays a crucial role in managing the special needs trust. Their responsibilities include:

Managing trust assets
Making payments on behalf of your child (but not directly to the child)
Keeping detailed financial records
Ensuring that the trust does not affect your child’s government benefits

Some families choose a trusted family member, while others opt for a professional or corporate trustee. Either path can be successful. However, you must carefully weigh your options. The right trustee must understand the requirements of a special needs trust and prioritize the child’s long-term well-being.

Can a Special Needs Planning Attorney Help?

Creating a special needs trust involves complex decisions that require careful consideration. A special needs planning attorney can guide you through setting up the trust, planning to fund it adequately and helping you select a trustee. They will also ensure that the trust complies with current legal standards, critical for preserving your child’s government benefits.

Start Building a Secure Future for Your Child with a Special Needs Trust Today

Securing your child’s future starts with creating a plan tailored to their needs. Contact our office today to schedule a consultation with a special needs planning attorney. We’ll help you navigate the process and ensure that your child has the resources for a fulfilling life.

Key Takeaways

Protect Government Benefits: A special needs trust allows your child to receive an inheritance without losing eligibility for vital programs, like Medicaid or SSI.
Enhance Quality of Life: The trust provides supplemental needs like therapies, personal care and recreation, improving your child’s daily experience.
Ensure Long-Term Financial Security: Proper funding ensures that resources will be available throughout your child’s life.
Maintain Control Over Assets: Decide how to manage and distribute assets to protect your child’s future financial stability.
Appoint a Reliable Trustee: Select someone who will manage the trust responsibly and in your child’s best interest.

Reference: Special Needs Alliance “A Special Needs Trust and Your Plan for the Future“

Can You Support a Child with Special Needs?

Families that include individuals with special needs require planning to secure their loved ones’ security in the future, both in legal and financial terms. There’s usually no expectation of the child becoming an independent adult, so careful planning is needed, as advised in the recent article “Financial Planning for Families with Disabilities” from Wealth Management.

Many families neglect planning for their retirement, focusing all their resources on developing a plan for their disabled child. However, retirement and their child’s future need to be secured, which is where an estate planning attorney can help.

In 2014, Congress created The Achieving a Better Life Experience (ABLE) accounts to allow disabled individuals to own accounts with up to $100,000 without the assets being counted against their eligibility for Supplemental Security Income. A parent may make annual contributions, and costs not covered by government benefits can be paid using this account.

A Pooled Special Needs Trust is a group of several Special Needs Trusts managed by a nonprofit, which, as its name implies, pools the assets of many Special Needs individuals together. Each account remains separate, and the trust provides management and investment services.

Unlike a typical SNT, people over 65 may participate in a pooled SNT. Medicaid and SSI beneficiaries wishing to spend down their assets to become eligible can transfer assets directly into a pooled trust account. Consult with an estate planning attorney to ensure that this occurs correctly.

The most significant responsibility for parents planning for their disabled child is to ensure that no one mistakenly puts their child’s eligibility at risk for Medicaid and SSI. A well-meaning family member leaving assets to the child could undo plans, so they must be informed of the necessary restrictions.

Medicaid does far more than provide health care benefits. It funds social and occupational programming, residences for group living and many other benefits of great value to the disabled individual. The eligibility rules are complex and require the help of a skilled estate planning attorney to navigate successfully.

Reference: Wealth Management (March 1, 2024) “Financial Planning for Families with Disabilities”

Essential Estate Planning Considerations for Minor Children

Estate Planning for Minor Children

It is paramount for parents to have an estate plan that not only takes care of their personal and financial matters but also addresses the well-being of their minor child or children. Delving into estate planning considerations can be overwhelming, especially when young children are involved. This guide will provide you with a comprehensive understanding of estate planning for minors.

Estate Planning: Why Is It Essential for Parents with Young Children?

Estate planning for parents with young children involves setting up mechanisms to ensure that, in the event both parents pass away, their children will be cared for in the desired manner. Many parents overlook this critical aspect. However,ensuring their children have the protection and support they need is vital.

What Is a Trust and Why Is it Important for Minor Children?

A trust is a legal entity that holds and manages assets for the benefit of certain persons or entities, typically the minor child or children. A trust may be established to ensure that your child receives the inheritance at an appropriate age. The trustee is also responsible for managing the trust assets for the child’s benefit until they reach the age of majority.

Appointing a Guardian: Who Will Care for Your Children in the Event Both Parents Die?

Choosing a guardian for your child is one of the most critical decisions in an estate plan. The guardian is entrusted with raising your child if both parents die or become incapacitated. Young parents, especially, need to decide who they would trust to raise their children if both parents are not around. Appointing someone you trust and discussing your wishes with them beforehand is essential.

Power of Attorney: Who Makes Decisions on Your Behalf?

A power of attorney is a legal document that allows a person to act on your behalf if you become incapacitated. There are different types of power of attorney, such as financial power and medical power. The former deals with financial matters, while the latter allows someone to make medical decisions for you.

Special Needs Planning: What If One of Your Children has Special Needs?

If you have a child with special needs, specific considerations should be included in the estate plan. A special needs trust is a tool parents can use to ensure that the inheritance does not disqualify the child from receiving essential government benefits. Estate planning for special needs children requires meticulous attention to detail to safeguard their interests.

Life Insurance: Ensuring Financial Security for Your Children

Life insurance plays a crucial role in estate planning for parents with minor children. In the unfortunate event that one or both parents pass away, the life insurance proceeds can provide financial stability for the children. This ensures that they have the means for education, healthcare and other essential needs.

The Last Will and Testament: A Fundamental Estate Planning Document

A last will and testament primarily directs how your personal property should be distributed after your death. Parents need to stipulate their desires, especially regarding their children’s inheritance.

Beneficiary Designations: Make Sure That Assets Go Where You Want

Ensuring the correct beneficiary designation on assets, like retirement accounts, is vital when drafting an estate plan. Incorrect or outdated designations can result in unintended consequences, potentially sidelining the intended benefits for your minor children.

Trusts for Children from Previous Relationships

For parents with children from previous relationships, establishing a trust can ensure that all children, irrespective of their biological ties, are treated equitably. This ensures that the inheritance and trust assets are distributed according to the parent’s wishes.

In Conclusion: Key Takeaways

Establishing an estate plan is vital for parents with minor children.
Setting up a trust can protect a child’s inheritance until they reach a suitable age.
Appointing a trusted guardian ensures that your children are in safe hands should anything happen to both parents.
Power of attorney is essential for someone to make decisions on your behalf if you become incapacitated.
Parents with special needs children should consider setting up a special needs trust.
Life insurance is crucial for the financial security of your children.
Always ensure that beneficiary designations are updated and correct.
Trusts can be especially useful for parents with children from previous relationships.

To ensure that your estate plan aligns with your desires and the well-being of your minor child or children, consider consulting an estate planning attorney or law firm. They can guide you through the intricate details and help you make the best choices for your family’s future.

Should Each Child Get Equal Inheritance?

Every estate planning attorney has conversations with their clients about how adult children should inherit. While most people assume siblings should all inherit equally, in many situations, equal is not always appropriate. There are many situations where an equal inheritance might be unfair, says a recent article, “How Should Your Children Inherit? 4 Scenarios Where ‘Equal’ Is Not Appropriate,” from Kiplinger.

The Caretaker Child Lives With the Parent. When one of the children lives with the parent and has taken on most, if not all, of the responsibilities, it may be fair to treat the child differently than siblings who are not involved with the parent’s care. Taking care of paying bills, coordinating health care appointments, driving the parent to appointments and being involved with end-of-life care is a lot of responsibility. It may be fair to leave this child the family home or leave the home to a trust for the child for their lifetime. The parent may wish to leave the caretaking child a larger portion of the inheritance to recognize the additional help they provided.

A Special Needs Child. If the parent has been the primary caregiver for a special needs child, the estate plan must take this into consideration to ensure the child will be properly cared for after the parents die or are unable to care for the child. Depending on what government benefits the child receives, this usually means the parents need to have a Special Needs Trust or Supplemental Needs Trust created. Most government benefits are means-tested. To remain eligible, recipients may not have more than a certain amount of personal assets. The Special Needs or Supplemental Needs trust could receive more or less than an equal amount of the estate the child would have inherited.

In this scenario, siblings are generally understanding. The siblings often know they will be the ones caring for the family member with special needs when the parents can no longer provide care and welcome the help of an elder law estate planning attorney to plan for their sibling’s future.

An Adult Child With Problems. It’s usually not a good idea to leave an equal portion of an inheritance to an adult child who suffers from mental illness, substance abuse, is going through a divorce or has a life-long history of making bad choices. Putting the money into a trust with a non-family member serving as a trustee and strict directions for when and how much money may be distributed may be a better option. In some cases, disinheriting a child is the unpleasant but only realistic alternative.

Wealth Disparities Among the Siblings. When one child has been financially successful and another struggles, it’s fair to bequeath different amounts. However, wealth can change over a lifetime, so review the estate plan and the wealth distribution on a regular basis.

How To Decide What Will Work For Your Family? Every family is different, and every family has different dynamics. Have open and honest discussions with your estate planning attorney, so they can help you plan for your family’s situation. If possible, the same frank discussion should take place with adult children, so no one is taken by surprise at a time when they will be grieving a loss.

Reference: Kiplinger (Dec. 18, 2022) “How Should Your Children Inherit? 4 Scenarios Where ‘Equal’ Is Not Appropriate”

Why Do I Need a Will?

Perhaps getting hit by a cement truck is too blunt for some, but unexpected things happen all the time. An estate plan, including a will and other important documents, is good preparation, especially for caregivers of people with special needs. A recent article from Forbes titled “Where There is a Will, There is a Way” explains the steps everyone, especially caregivers, need to follow.

Creating a last will and testament

This is the foundation of an estate plan. Without a will, the court will distribute assets to children equally. If a disabled person receiving government benefits receives an inheritance, they will become ineligible and lose access to services. The court will also assign guardianship to minors or disabled individuals, if there is no will. A will, in tandem with proper estate planning, ensures protection for an individual with special needs, including naming a guardian of your choice.

Having a General Durable Power of Attorney for Finances

A POA allows you to name a person you trust to manage finances, real estate property, investments, or any aspect of your life, if you become incapacitated. A POA should be created for your needs, so you may decide in advance what you do and do not want your agent to be able to do for you.

Creating a Durable Power of Attorney for Healthcare

This important legal document, paired with a HIPAA release form, allows someone of your choice to take charge of your healthcare, talk with healthcare providers and make decisions based on your expressed wishes. You may name more than one person for this role but doing so could make it harder if the two people don’t agree on your care.

Naming a Guardian

This is a critical step if you are a caretaker for a person who will likely be unable to manage their own affairs, even after attaining legal age. By naming a guardian in your will, you can select the people who will be in charge of your special needs family member or minor children. Without a guardian named in your will, the courts will make this decision.

Drafting a “Letter of Intent”

A letter of intent is a guide with important information only you know. It is especially important for caretakers. Explaining in detail your disabled individual’s preferences can make a huge difference in the quality of their lives when you are no longer available. What are their likes and likes, what people do they enjoy spending time with and what foods do they prefer, etc. If your children are minors, this letter is an opportunity to describe your preferences for how they should be raised, including religious preferences, vocational choices and even nighttime rituals.

Providing Financial Security

If your family includes a loved one with Special Needs, you can protect their ability to have funds for things not covered by government benefits through a Special Needs Trust. Your estate planning attorney will create an SNT with a trustee and a secondary trustee to oversee the funds and ensure that they are used for qualified expenses.

Reference: Forbes (July 6, 2022) “Where There is a Will, There is a Way,”

Can You Refuse an Inheritance?

No one can be forced to accept an inheritance they don’t want. However, what happens to the inheritance after they reject, or “disclaim” the inheritance depends on a number of things, says the recent article “Estate Planning: Disclaimers” from NWI Times.

A disclaimer is a legal document used to disclaim the property. To be valid, the disclaimer must be irrevocable, in writing and executed within nine months of the death of the decedent. You can’t have accepted any of the assets or received any of the benefits of the assets and then change your mind later on.

Once you accept an inheritance, it’s yours. If you know you intend to disclaim the inheritance, have an estate planning attorney create the disclaimer to protect yourself.

If the disclaimer is valid and properly prepared, you simply won’t receive the inheritance. It may or may not go to the decedent’s children.

After a valid qualified disclaimer has been executed and submitted, you as the “disclaimor” are treated as if you died before the decedent. Whoever receives the inheritance instead depends upon what the last will or trust provides, or the intestate laws of the state where the decedent lived.

In most cases, the last will or trust has instructions in the case of an heir disclaiming. It may have been written to give the disclaimed property to the children of the disclaimor, or go to someone else or be given to a charity. It all depends on how the will or trust was prepared.

Once you disclaim an inheritance, it’s permanent and you can’t ask for it to be given to you. If you fail to execute the disclaimer after the nine-month period, the disclaimer is considered invalid. The disclaimed property might then be treated as a gift, not an inheritance, which could have an impact on your tax liability.

If you execute a non-qualified disclaimer relating to a $100,000 inheritance and it ends up going to your offspring, you may have inadvertently given them a gift according to the IRS. You’ll then need to know who needs to report the gift and what, if any, taxes are due on the gift.

Persons with Special Needs who receive means-tested government benefits should never accept an inheritance, since they can lose eligibility for benefits.

A Special Needs Trust might be able to receive an inheritance, but there are limitations regarding how much can be accepted. An estate planning attorney will need to be consulted to ensure that the person with Special Needs will not have their benefits jeopardized by an inheritance.

The high level of federal exemption for estates has led to fewer disclaimers than in the past, but in a few short years—January 1, 2026—the exemption will drop down to a much lower level, and it’s likely inheritance disclaimers will return.

Reference: NWI Times (Nov. 14, 2021) “Estate Planning: Disclaimers”

What Happens to My Home If I Leave It to a Medicaid Recipient in My Will?

When a beneficiary is on Medicaid and she’s set to get a bequest of the grantor’s home in her last will, the question may arise about the impact on her Medicaid benefits.

The answer will depend on the Medicaid program and what the daughter decides to do with the house, says nj.com’s recent article entitled “What happens to my daughter’s Medicaid if I leave her my home?”

Medicaid provides health coverage for some low-income people, families and children, pregnant women, the elderly, and people with disabilities.

In some states the program covers all low-income adults below a certain income level.

Medicaid programs are required to follow federal guidelines, but coverage and costs may be different from state to state.

Here, if the daughter receives Medicaid because she also receives SSI or has ABD Medicaid, the house will not be counted as a disqualifying asset if the house is the daughter’s principal place of residence.

If the daughter sells the house, the sale proceeds would be countable.

If she is getting expanded Medicaid through Obamacare, her eligibility would be based on income. So, if the daughter rented the house or sold the house, the income that would be generated could disqualify her from continuing to receive benefits, depending on the amount of income she gets.

If the daughter is disabled, consider leaving the daughter the house in a special needs trust. With a special needs trust, there’s a legal arrangement and fiduciary relationship that allows a physically or mentally disabled or chronically ill person to enjoy trust assets without jeopardizing their eligibility for Medicaid.

A Medicaid Asset Protection Trust is an irrevocable trust, and assets placed in the trust are considered completed gifts to the beneficiaries, protecting the assets from Medicaid (after the look-back period).

With a Medicaid Asset Protection Trust, even if the house is sold, the sale proceeds wouldn’t disqualify the daughter from receiving Medicaid.

Ask an experienced elder law attorney for help with this situation.

The laws regarding Medicaid and Medicaid eligibility are extremely complex and vary from state to state. Accordingly, nothing in this article should be considered legal advice.

Reference: nj.com (July 30, 2021) “What happens to my daughter’s Medicaid if I leave her my home?”

How Do You Divide Inheritance among Children?

A father who owns a home and has a healthy $300,000 IRA has two adult children. The youngest, who is disabled, takes care of his father and needs money to live on. The second son is successful and has five children. The younger son has no pension plan and no IRA. The father wants help deciding how to distribute 300 shares of Microsoft, worth about $72,000. The question from a recent article in nj.com is “What’s the best way to split my estate for my kids?” The answer is more complicated than simply how to transfer the stock.

Before the father makes any kind of gift or bequest to his son, he needs to consider whether the son will be eligible for governmental assistance based on his disability and assets. If so, or if the son is already receiving government benefits, any kind of gift or inheritance could make him ineligible. A Third-Party Special Needs Trust may be the best way to maintain the son’s eligibility, while allowing assets to be given to him.

Inherited assets and gifts—but not an IRA or annuities—receive a step-up in basis. The gain on the stock from the time it was purchased and the value at the time of the father’s death will not be taxed. If, however, the stock is gifted to a grandchild, the grandchild will take the grandfather’s basis and upon the sale of the stock, they’ll have to pay the tax on the difference between the sales price and the original price.

You should also consider the impact on Medicaid. If funds are gifted to the son, Medicaid will have a gift-year lookback period and the gifting could make the father ineligible for Medicaid coverage for five years.

An IRA must be initially funded with cash. Once funded, stocks held in one IRA may be transferred to another IRA owned by the same person, and upon death they can go to an inherited IRA for a beneficiary. However, in this case, if the son doesn’t have any earned income and doesn’t have an IRA, the stock can’t be moved into an IRA.

Gifting may be an option. A person may give up to $15,000 per year, per person, without having to file a gift tax return with the IRS. Larger amounts may also be given but a gift tax return must be filed. Each taxpayer has a $11.7 million total over the course of their lifetime to gift with no tax or to leave at death. (Either way, it is a total of $11.7 million, whether given with warm hands or left at death.) When you reach that point, which most don’t, then you’ll need to pay gift taxes.

Medical expenses and educational expenses may be paid for another person, as long as they are paid directly to the educational institution or health care provider. This is not considered a taxable gift.

This person would benefit from sitting down with an estate planning attorney and exploring how to best prepare for his youngest son’s future after the father passes, rather than worrying about the Microsoft stock. There are bigger issues to deal with here.

Reference: nj.com (June 24, 2021) “What’s the best way to split my estate for my kids?”

Should You Include a Letter of Instruction with Your Estate Plan?

A letter of instruction, or LOI, is a good addition to the documents included in your estate plan. It’s commonly used to express advice, wishes and practical information to help the people who will be taking care of your affairs, if you become incapacitated or die. According to this recent article “Letter of instruction in elder law estate plan can help with managing important information” from the Times Herald-Record, there are many different ways an LOI can help.

In our digital world, you might want to use your LOI to record website names, usernames and passwords for social media accounts, online accounts and other digital assets. This helps loved ones who you want to have access to your online life.

If you have minor children who are beneficiaries, the LOI is a good way to share your priorities to the trustee on your wishes for the funds left for their care. It is common to leave money in trust for HEMS—for “Health, Education, Maintenance and Support.” However, you may want to be more specific, both about how money is to be spent and to share your thoughts about the path you’d like their lives to take in your absence.

Art collectors or anyone who owns valuable items, like musical instruments, antiques or collectibles may use the LOI as an inventory that will be greatly appreciated by your executor. By providing a carefully created list of the items and any details, you’ll increase the likelihood that the collections will be considered by a potential purchaser. This would also be a good place to include any resources about the collections that you know of, but your heirs may not, like appraisers.

Animal lovers can use an LOI to share personalities, likes, dislikes and behavioral quirks of beloved pets, so their new caregivers will be better prepared. In most states, a pet trust can be created to name a caregiver and a trustee for funds that are designated for the pet’s care. The caregiver and the trustee may be the same person, or they may be two different individuals.

For families who have a special needs member, an LOI is a useful means of sharing important information about the person and is often referred to as a “Letter of Intent.” It works in tandem with a Special Needs Trust, which is created to leave assets to a person who receives government benefits without putting means-tested benefits in jeopardy. If there is no Special Needs Trust and the person receives an inheritance, they could lose access to their benefits.

Some of the information in a Letter of Intent includes information on the nature of the disability, daily routines, medications, fears, preferred activities and anything that would help a caregiver provide better care, if the primary caregiver dies.

The LOI can also be used to provide basic information, like where important documents are kept, who should be notified in case of death or incapacity, which bills should be paid, what home maintenance tasks need to be taken care of and who provides the services, etc. It is a useful document to help those you leave behind to adjust to their new responsibilities and care for loved ones.

Reference: Times Herald-Record (Sep. 8, 2020) “Letter of instruction in elder law estate plan can help with managing important information”

How Do I Find a Great Elder Law Attorney?

Elder law attorneys specialize in legal affairs that uniquely concern seniors and their adult children, says Explosion’s recent article entitled “The Complete Guide on How to Find an Elder Law Attorney.”

Finding the right elder law attorney can be a big task. However, with the right tips, you can find an experienced elder law attorney who is knowledgeable, has the right connections and fits your budget.

While, technically, a general practice attorney will be able to handle your retirement, Medicaid and even your estate planning, an elder law lawyer is deeply entrenched in elder law. This means he or she will have extensive knowledge and experience to handle any case within the scope of elder law, like the following:

Retirement planning
Long-term care planning and insurance
Medicaid
Estate planning
Social Security
Veterans’ benefits; and
Other related areas of law.

While a general practice lawyer may be able to help you with one or two of these areas, a competent elder law lawyer knows that there’s no single formula in elder law that applies across the board. That’s why you’ll need a lawyer with a high level of specialization and understanding to handle your specific circumstances. An elder law attorney is best suited for your specific needs.

A referral from someone you trust is a great place to start. When conducting your elder law lawyer search, stay away from attorneys who charge for their services by the hour. For example, if you need an elder law attorney to work on a Medicaid issue, they should be able to give you an estimate of the charges after reviewing your case. That one-time flat fee will cover everything, including any legal costs, phone calls, meetings and court fees.

When it comes to elder law attorneys, nothing says more than experience. An experienced elder law lawyer has handled many cases similar to yours and understands how to proceed. Reviewing the lawyer’s credentials at the state bar website is a great place to start to make sure the lawyer in question is licensed. The website also has information on any previous ethical violations.

In your search for an elder law attorney, look for a good fit and a high level of comfort. Elder law is a complex area of law that requires knowledge and experience.

Reference: Explosion (Aug. 19, 2020) “The Complete Guide on How to Find an Elder Law Attorney”

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