Estate Planning Tips for Families with a Special Needs Child
By Don Drake, Connelly Law Offices, Ltd.
"Children with a wide variety of special needs, physical and cognitive disabilities, can live more productive lives than ever before with today's medications and health care advancements," stated professional fiduciary and certified elder law Attorney RJ Connelly III. "Social service and medical providers regard the term 'special needs' as a euphemism for 'disability'. The difference between the two terms is acceptance and preference as both describe the four major types of disability legal offices and treatment professionals address: physical, developmental, sensory impaired, and behavioral/emotional."
Those who have a child with special needs know the importance of planning their future with the utmost care with the understanding that they will meet additional challenges to care for themselves as their lives progress," continued Attorney RJ Connelly III. "According to the US Census Bureau, between the years 2008 to 2019, the biggest increase in special needs was the experience of cognitive difficulty, which saw the largest jump in prevalence. Given that, proper and comprehensive estate planning takes on even more significance when caring for a child who is and will be dependent upon government benefits."
"While your child is a minor, be sure you and anyone caring for your child have signed appropriate directives that specify who should care for your child if you cannot. You may also consider preparing legal documents that name a guardian for your child, again if you cannot care for your child or in the event of your death," said Attorney Connelly. "Once your child is an adult with the legal capacity to sign documents, that child should have their own set of advance directives naming a trusted agent."
Special Needs Trusts
"First, there are several types of special needs trusts. A First Party Special Needs Trust receives its funding from the special needs person if they are under sixty-five," stated Attorney RJ Connelly III. "There are many ways the funding can occur, including lawsuit proceeds, inheritance, or lump-sum disability benefits. A first-party trust can be established by the special needs child, parent, grandparent, or guardian and, when appropriately drafted, will not affect eligibility for the special needs person's government benefits."
"A Third-Party Special Needs Trust permits family members to use their assets to fund a trust to benefit a person with special needs without negatively impacting their eligibility for government benefits. The funds in this type of trust do not have a payback provision, allowing any remaining assets to pass to other beneficiaries as designated by the trust maker and can be created during a lifetime or under the instructions of a will," pointed out Attorney Connelly.
The final trust Attorney Connelly discussed is called the Pooled Trust. "This type of trust is a community trust that a non-profit organization manages to fund the needs of many special needs beneficiaries. Essentially, the non-profit acts as a trustee and can be a good option for small families or those seeking non-family member trustees. The property held by the pooled trust for the beneficiary should not affect eligibility for government benefits."
"If you have a life insurance policy or are considering one, you can make the proceeds payable to your third-party special needs trust," said Attorney Connelly. "Leaving permanent and term life insurance policies to this trust type will not affect the child's government benefits. If there are retirement accounts, that money may also be payable to the third-party special needs trust if there is a balance at the end of the account holder’s life."
"Another question that comes up in the conversation about special needs trusts is the disposition of property," stated Attorney Connelly. "It is not advisable to leave property for the care of a special needs child to a third party, such as another child. This third-party designate has no legal obligation to follow your wishes, leaving the use of your money to the discretion of that third party. As this arrangement is not legally enforceable, a child with special needs will be unprotected after you die."
"Another excellent choice is to create an ABLE (Achieving a Better Life Experience) account," suggested Attorney Connelly. "This is similar to the 529 College Savings plan. An individual who experiences the disability before age 26 can deposit up to $17,000 a year into the ABLE account. This money grows tax-free and can pay those approved expenses to maintain or improve the individual's quality of life."
Approved expenses under an ABLE account include education and employment training, food, housing, transportation, personal support and assistive technologies, health and prevention services, fiscal management and administration, legal fees, and expenses for funeral and burial.
"ABLE accounts can also be funded by parents, family members, and friends who may want to contribute to the individual's quality of life," said Attorney Connelly. "Most government programs are not affected by these funds."
However, there are some limitations to ABLE accounts, and each state may have different asset caps. These limitations include the following:
There is a Medicaid payback from the account should the designated beneficiary's death occur.
As stated earlier, the disability must have occurred before age 26.
States have asset caps. In Rhode Island, the cap is $395,000; in Massachusetts, it is $400,000; and in Connecticut, it is $300,000. To see all state ABLE account information, please click here: Learn About Your State's ABLE Account.
Four states, Idaho, North Dakota, South Dakota, and Wisconsin do not have ABLE accounts.
"When doing an estate plan that involves a child or dependent with special needs, it's important to seek the assistance of a qualified and experienced professional due to the intricacies involved," stated Attorney RJ Connelly. A mistake in this planning could threaten the future of the individual with special needs."