In this article, we will examine the unique planning requirements of families with children, grandchildren or other family members (such as parents) who have special needs. There are numerous misconceptions in this area that can result in costly mistakes when planning for beneficiaries who have special needs. Understanding the pitfalls associated with special needs planning is a must for everyone who assists families who have loved ones with special needs and the families themselves.

 

Tip #1: Avoid disinheriting the beneficiary who has special needs. Many people who are disabled receive Supplemental Security Income ("SSI"), Medicaid or other government benefits for food, shelter and/or medical care. The loved ones of the beneficiaries who have special needs may be advised to disinherit them - beneficiaries who need their help the most - to protect those beneficiaries’ public benefits. But these benefits rarely provide more than basic needs. This disinheriting, which normally involves leaving the inheritance to another sibling, does not allow loved ones to help their beneficiaries who have special needs after they themselves become incapacitated or die. The best solution is for loved ones to create a special needs trust to hold the inheritance of a beneficiary who has special needs.

 

Planning Note: It is unnecessary and, in fact, poor planning to disinherit beneficiaries who have special needs. Loved ones of beneficiaries who have special needs should consider a special needs trust in order to protect public benefits and care for those beneficiaries during their own incapacity or after their death.

 

Tip #2: Procrastinating can be costly for a beneficiary who has special needs. None of us know when we may die or become incapacitated. It is important for loved ones of beneficiaries who have special needs to plan early, just as they should for other dependents such as minor children. However, unlike most other beneficiaries, beneficiaries who have special needs may never be able to compensate for a failure to plan. Minor beneficiaries who do not have special needs can obtain more resources as they reach adulthood and can work to meet essential needs, but beneficiaries who have special needs may never have that ability.

 

Planning Note: Parents and grandparents (or any other loved ones of a beneficiary who has special needs) face unique planning challenges. This is one area where families simply cannot afford to wait to plan.

 

Tip #3: Do not ignore the special needs of the beneficiary when planning. Planning that is not designed with the beneficiary who has special needs in mind will probably render the beneficiary ineligible for essential government benefits. A properly designed special needs trust promotes the comfort and happiness of the beneficiary who has special needs without sacrificing eligibility.

 

Special needs can include medical and dental expenses, annual independent check-ups, necessary or desirable equipment (for example, a specially equipped van), training and education, insurance, transportation and essential dietary needs. If the trust is sufficiently funded, the person who is disabled can also receive spending money, electronic equipment & appliances, computers, vacations, movies, payments for a companion and other self-esteem and quality-of-life enhancing expenses.

 

Planning Note: When planning for a beneficiary who has special needs, it is critical that families utilize a properly drafted special needs trust as the vehicle to pass assets to that beneficiary. Otherwise, those assets may disqualify the beneficiary from public benefits and may be available to repay the state for the assistance provided.

 

Tip #4: A special needs trust does not have to be inflexible. Some special needs trusts are unnecessarily inflexible and generic. Although an attorney with some knowledge of the area can protect almost any trust from invalidating the beneficiary’s public benefits, many trusts are not customized for the particular beneficiary’s needs. Thus, the beneficiary fails to receive the benefits that the parents or others provided when they were alive.

 

Another frequent mistake occurs when the special needs trust includes a pay-back provision rather than allowing the remainder of the trust to go to others upon the death of the beneficiary who has special needs. While these pay-back provisions are necessary in certain types of special needs trusts, an attorney who knows the difference can save family members and loved ones hundreds of thousands of dollars, or more.

 

Planning Note: A special needs trust should be customized to meet the unique circumstances of the beneficiary who has special needs and should be drafted by a lawyer who is familiar with this area of the law.

 

Tip #5: Use great caution in choosing a trustee. Loved ones or family members can manage the special needs trust while they are alive and well if they are willing to serve and have proper training and guidance. Once the family member or loved one is no longer able to serve as trustee, they can choose who will serve according to the instructions provided in the special needs trust. Families or loved ones who create a special needs trust may choose a team of advisors and/or a professional trustee to serve. Whomever they choose, it is crucial that the trustee is financially savvy, well-organized and, of course, ethical.

 

Planning Note: The trustee of a special needs trust should understand the trustmaker’s objectives and be qualified to invest the assets in a manner most likely to meet those objectives.

 

Tip #6: Invite others to contribute to the special needs trust. A key benefit of creating a special needs trust is that the beneficiary’s extended family and friends can make gifts to the trust or remember the trust as they engage in their own estate planning. For example, these family members and friends can name the special needs trust as the beneficiary of their own assets in their revocable trust or will and they can also name the special needs trust as a beneficiary of life insurance or retirement benefits. Unfortunately, many extended family members may not be aware that a special needs trust exists or that they could contribute money to the special needs trust now or as an inheritance later.

 

Planning Note: Creating a special needs trust allows others, such as grandparents and other family members, to name the special needs trust as the beneficiary of their own estate planning.

 

Tip #7: Relying on siblings to use their money for the benefit of a child who has special needs can have serious adverse effects. Many family members rely on their other children to provide, from their own inheritances, for a child who has special needs. This can be a temporary solution for a brief time, such as during a brief incapacity if their other children are financially secure and have money to spare. However, it is not a solution that will protect a child who has special needs after the death of the parents or when siblings have their own expenses and financial priorities.

 

What if an inheriting sibling goes through a divorce or loses a lawsuit? His or her spouse (or a judgment creditor) may be entitled to half of it and will likely not care for the child who has special needs. What if the sibling dies or becomes incapacitated while the child who has special needs is still living? Will his or her heirs care for the child who has special needs as thoughtfully and completely as the sibling did?

 

Siblings of a child who has special needs often feel a great responsibility for that child and have felt so all of their lives. When parents provide clear instructions and a helpful structure, they lessen the burden on all their children and support a loving and involved relationship among them.

 

Planning Note: Relying on siblings to care for a beneficiary who has special needs is a short-term solution at best. A special needs trust ensures that the assets are available for the beneficiary who has special needs (and not the former spouse or judgment creditor of a sibling) in a manner intended by the parents.

 

Bonus Tip: Stay up-to-date on changes in the law. The rules applicable to special needs trusts are constantly changing. For example, most recently, the Special Needs Trust Fairness passed the Senate. This piece of legislation empowers individuals who have disabilities to establish their own special needs trusts. This bill goes to the House next for consideration. See our prior article on the Special Needs Trust Fairness Act on page 5 of The Advocacy Update, Volume 1, Issue 1, here: http://www.alsopelderlaw.com/The-Advocacy-Update-Vol-1-Issue-1.pdf.

 

Planning Note: It is imperative to stay up-to-date on changes in the rules that apply to special needs trusts to ensure the benefits received by a beneficiary who has special needs are not jeopardized as a result of changes in the law.

 

Conclusion. Planning for a beneficiary who has special needs requires particular care and knowledge on the part of the planning team. A properly drafted and funded special needs trust can ensure that the beneficiary who has special needs has sufficient assets to care for him or her, in a manner intended by loved ones, throughout the beneficiary’s lifetime.

 

Please contact us if you have any questions or would like to discuss any information in this newsletter further.