Special Needs Estate Planning

Estate Planning for Parents of Children with Disabilities

Estate Planning for parents (and grandparents) of children with disabilities presents special challenges. The goal of most parents who have a disabled child is to protect his or her assets in such a way as to enrich their child’s life while preserving any government benefits available to the disabled child.

There are a number of government benefits available to disabled individuals. These include Supplemental Security Income (SSI), Social Security Disability Insurance (SSD), Medicare, and Medicaid. SSI is a needs-based program under which benefits are paid only to persons who meet welfare limitations with respect to both income and resources. Persons receiving SSI in most states are automatically entitled to Medicaid. Consequently, the receipt of cash or other assets will frequently disqualify a disabled individual from receiving SSI and Medicaid. The loss of these benefits can be devastating.

Parents of disabled children have three options. They can either: (1) distribute assets outright to the disabled child; (2) distribute assets to the disabled child’s siblings with the understanding that they will hold the assets for the benefit of the disabled child; or (3) distribute assets to a Special Needs Trust (“SNT”) for the child’s benefit.

We do not recommend leaving assets outright to the disabled child because the receipt of the funds is likely to cause the child to become ineligible for SSI and Medicaid. The second option is also not advisable because, although the gift will not disqualify the child from government benefits, assets distributed outright to siblings are legally owned by the siblings. Therefore, such assets are then exposed to creditors, divorce actions, misappropriation, and/or mismanagement by siblings.

The third option, to establish an SNT, is the most prudent by far. The inherited/gifted assets held in an SNT are not considered “available” to the child. Accordingly, the existence of an SNT allows for the continuation of government benefits. The assets of an SNT are free to be used for purposes that will enhance the enjoyment and well being of the disabled child. The discretion to utilize the trust funds lies solely with the Trustee; not with the child.

An SNT can be established either at death (through a testamentary SNT) or during lifetime (through an inter vivos SNT). A testamentary SNT would be created at the death of the surviving parent. Therefore, a family member passing away prior to the death of the parents could not leave money to the SNT. By contrast, an inter vivos SNT offers a single vehicle through which parents and other family members can make gifts (either during life or at death) to the disabled child. For example, an aunt or uncle might be inclined to make a gift or a bequest to an existing SNT for a disabled child but might not be willing to incur the added expense and complication of establishing an SNT in their estate planning documents. Accordingly, the existence of an inter vivos SNT may result in more assets being available for the child.

If you have a disabled child or grandchild, special planning exists which can enhance the disabled child’s quality of life. Without proper legal advice, these goals to enrich the lives of such children might never be achieved. If you are interested in meeting with our firm to learn more about SNT’s please call our office at 856-489-8388 to schedule an appointment or contact us with any questions you may have.

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