Parents of a disabled child not only need to do their own estate planning, they also need to plan for the continued care of their child, possibly into adulthood.
A comprehensive estate plan provides for all of the children not only upon the death of the parents, but also in the event they become sick or incapacitated. Exactly what type of planning and how much depends on the nature and severity of the child’s disability, the parents’ resources, and the family’s goals and objectives.
Although parents can typically name someone to act for them if they become incapacitated, they cannot name someone to act on behalf of an incapacitated adult child without court involvement. However, they can minimize court involvement by removing asset management and distribution decisions from the control of a guardian and the court through planning with a Will, revocable trust, and/or irrevocable trust. Documents should be in place indicating the parents’ choice of guardian of a child — both at the parents’ death and in the event of their disability.
Parents must assess the future non-financial needs of the child after the parents are gone. With whom and where will the child live? What housing options or assistance are available? What activities does the child enjoy? This includes an estimate for the future financial needs of the child, taking into account projected government assistance.
Parents must create a financial plan for their future, as well as the child’s. How will the parents create enough wealth, or preserve enough wealth, to reach the goals they have for themselves and their child? Should they leave a larger share for the disabled child than for the other children?
Every parent must consider what should be done to protect their estate from devastation during their lives. If in high-risk occupations (financially or physically), there may be a need for additional insurance or asset-protection planning. Is there enough medical, disability, and life insurance? Nursing home costs pose a threat to every estate.
Some people should explore long-term care insurance, which will seem expensive until compared to the long term cost of nursing home care (typically around $150,000 per year in Maine).
Also to be considered are possible estate taxes at the death of the parents. The individual federal exemption amount is $12.92 million, and the Maine exemption is $6.41 million (in 2023). Although that seems like a lot of money, some may be caught off guard, as the taxable estate includes such overlooked items as the value of IRAs, life insurance death proceeds, and even collectibles in the house.
As part of their overall estate planning, parents can have a portion (or all) of their estate stay in a Special Needs Trust for the benefit of their disabled child after they die. This can have several benefits. First, if done as part of a revocable living trust, the assets bypass probate. Second, the assets will be managed by someone the parents choose, not by a guardian the court chooses. Third, the parents can pre-plan what happens to the money when the child dies. Fourth, the parents can include guidance or legally binding directives about how the money is to be used for the child. Fifth, and sometimes of most importance, the trust can be drafted so as to not disqualify the child from governmental assistance benefits.
Since most government assistance requires the recipient to have little income and/or few assets, an outright bequest to the child or a trust which gives the child the right to demand money will disqualify the child from government assistance until the child spends down the assets. Although the government is fairly hostile towards people planning with their own assets in order to qualify themselves for government assistance (e.g., Medicaid coverage for nursing homes), the government has been less harsh in erecting blockades against parents planning with their own money for disabled children.
The Special Needs Trust can be used to provide for the needs of a disabled person to supplement benefits received from various governmental assistance programs such as SSI and Medicaid. A trust can hold cash, personal property or real property, and can be the beneficiary of life insurance proceeds. While the child’s basic needs could be met with government assistance, the trust could be used to provide “extras” not paid for by Medicaid (MaineCare).
Special needs expenses can include medical and dental expenses, annual independent check-ups, equipment, programs of training, education, treatment, and rehabilitation, eye glasses, transportation (including vehicle purchase), maintenance, insurance (including payment of premiums of insurance on the life of the beneficiary), and essential dietary needs.
Distributions from a Special Needs Trust could also be for spending money, electronic equipment (such as books, radios, CD players, television sets, and computer equipment), camping, vacations, athletic contests, movies, trips, payments for a companion and for personal care needs, and other items to enhance self-esteem. Most importantly, it can include alternative medical treatments, chiropractic care, and even massages.
Additionally, certain types of accounts exist that can help give the disabled person some financial independence. ABLE accounts are tax-advantaged savings accounts that might make sense, and certain debit cards are available that are specifically designed for protected persons.
As a final note, sometimes disabled children have their own funds which need protecting. The funds may have come from a lawsuit for negligence which resulted in the child’s disability. If the lawsuit settlement is paid to the child or a guardian, the money will be considered fully available to the child and will disqualify the child from government assistance. In part because of this, often damages are negotiated to be paid in the form of a structured settlement. The downside to this is inflexibility is if a child needs more in one year than the settlement calls for, or the child receives the funds outright when received. Receipt of funds outright each year may cause a reduction in, or disqualification from, governmental assistance benefits.
However, it is possible for a d4A Special Needs Trust to be created with the child’s own funds (such as those from the settlement), or from an inheritance given outright, and not have the trust disqualify the child from government assistance. If the child is under age 65 when the trust is created and the child is disabled under social security regulations, such a trust is possible. The only requirement is that the government be reimbursed at the death of the child from the trust for medical expenses paid from the Medicaid program.
It is also very important that you choose a Trustee(s) of the Special Needs Trust who understands the complex rules and regulations of distributions from the trust and reporting that needs to be made to DHHS and/or the Social Security Administration. You might want to consider a professional Trustee together with a family member. The Trustee(s) need to understand their responsibility and liability as Trustee(s).
Government regulations are very detailed and complex. It is important to plan with an advisor experienced in the area of public benefits and Special Needs Trusts. As in life, the laws and regulations can change over time, making it important for you and your Trustee(s) to insure you have the most up-to-date information and understanding of how to manage a Special Needs Trust so that the beneficiary is not disqualified from benefits, and the Trustee(s) continue to handle the Trust competently.
Rev 01/23
The information presented on this website is general in nature and not intended to be legal advice. No attorney-client relationship will exist with Jones, Kuriloff & Sargent, LLC unless we agree in writing after a personal consultation. Please contact us for a consultation on your particular situation.
