Estate Planning for Parents of Children with Disabilities
by: Thomas D. Begley, Jr.
© Special Needs Alliance, LLC
Harry, 48, and Sally, 46, have an autistic son, Bill, age 21. Bill lives with his parents. The couple is concerned about Bill’s welfare after they die. Harry and Sally always thought that Bill would live with his sister, Joan. Joan has three children and it is apparent that Joan’s husband, Andy, will not be happy with Bill living in his home.
Harry and Sally have a home, retirement plans, and $100,000 in investments. They have life insurance. Bill receives SSI and Medicaid, and he can have no more than $2,000 of assets. Any income Bill receives will reduce his SSI benefit dollar-for-dollar, and if he loses his SSI, he loses his Medicaid. Bill would be eligible for a group home.
Like all parents of children with disabilities, the critical question in Harry and Sally’s mind is, “what will happen to our child after we die?” Families are fearful that, after the parents die, there will be a loss in the quality of life of the person with disabilities. The child will lose his parents as his most effective advocates, his parents’ financial resources, and the child’s lifestyle in the parents’ home.
From a legal and financial standpoint Harry and Sally are anxious about how to protect Bill in the future.
The first problem is finding a lawyer who specializes in estate planning for persons with special needs. Most lawyers write Wills. Very few of these lawyers have expertise in public benefits and disability law. One way to find a specialist is by asking a friend, another way is to go to www.specialneedsalliance.com. This is an organization of leading elder and disability law attorneys located throughout the country.
The Special Needs Trust
Special needs trusts are discretionary, spendthrift trusts created for persons with disabilities which are intended to supplement, but not replace, any public benefits that the trust beneficiary receives.
They learn that a special needs trust is designed for persons with disabilities receiving SSI, Medicaid, Section 8 Housing or other public benefit programs. Harry and Sally’s special needs trust will maintain Bill’s SSI, Medicaid and potential eligibility for a group home in the future. At the same time, the trust will enable Bill to take advantage of the future inheritance that Harry and Sally will leave for his benefit. The trust fund can be used to pay for services and equipment that Medicaid would not cover. The special needs trust could purchase a home, special wheelchairs, handicap-accessible vans, mechanical beds, as well as pay for vacations, a personal attendant, and recreational and cultural experiences. This trust will be specifically tailored to enrich Bill’s life.
Funding the Trust
Harry and Sally must decide how much money to put in the special needs trust. Parents often divide their estates equally among their children. If all of the children are healthy, this makes sense. If one child has special needs, that child may need more or less than an equal share. The best way to make that determination might be to have a life care plan designed for Bill. Harry and Sally would define the lifestyle that they want for Bill and the life care planner would estimate the cost of Bill’s care over his lifetime. Harry and Sally could determine how much of their estate to leave to Bill’s special needs trust. Once the life plan is analyzed, it may reveal that the assets in Harry and Sally’s estate are insufficient to provide for Bill and his sister, Joan. In that case, Harry and Sally may consider buying a second-to-die life insurance policy. On the death of the survivor of Harry and Sally the insurance proceeds would be paid in to Bill’s special needs trust. Joan may then receive a larger share of the other assets.
Selecting the Trustee
A critical part of the special needs trust process is the selection of an appropriate trustee. The role of the special needs trustee requires a long term commitment, a keen sensitivity to the individual’s disabilities, involvement in monitoring the individual’s services, advocating for medical and financial entitlements, and prudently investing and distributing the trust funds. The trustee also has to comply with a number of very complicated laws, including SSI and Medicaid law. A professional trustee should always be considered, because they have the ability to invest money, understand and comply with SSI, Medicaid and tax laws, and the ability to navigate the disability system.
The Supplemental Security Income (SSI) program of the Social Security Act is a minimum monthly cash payment for persons with disabilities. The federal benefit is $675 per month. Pennsylvania has a small state supplement. A person receiving SSI also receives Medicaid, which pays for medical expenses.