Today, children with a
wide variety of special needs live long and productive lives. Advancements in
medical science and healthcare plus the availability of innovative resources that
provide occupational training, employment and independent living assistance
have helped make this possible. The
legal field has also refined estate planning tools to ensure that children with
special needs have access to government benefits without foregoing family
support. Planning for the future is key, and the earlier the better to avoid
The following are important
planning options to consider:
- Prepare Advance Directives: If your adult child has capacity, it is important that they execute both a Health Care Proxy and a Durable Power of Attorney. A Health Care Proxy allows your child to designate an agent to make medical decisions on their behalf during any period of incapacity. A Durable Power of Attorney grants an agent the ability to manage financial affairs. This may include applying for government benefits or establishing a Special Needs Trust.
- Petition for Article 17A Guardianship: Parents of children with special needs must plan for the child’s care beyond the age of 18. If parents wish to continue to make important decisions for their child after age 18, such as medical care, residential placement decisions and financial decisions, they must become the legal guardians of the child. A petition to become the guardian in this case is brought in the Surrogate’s Court. Article 17A Guardianship allows you to select Standby and Alternate Guardians to ensure that your child will always have someone legally responsible for their wellbeing and care should the original guardian pass away or need to resign.
- Establish a First Party Special Needs Trust: A First Party Special Needs Trust is funded with the assets of a special needs person under the age of 65, such as lawsuit proceeds, an inheritance left outright or lump sum disability benefits. The trust may be established by a parent, grandparent, guardian or the special needs individual himself. When properly drafted, the trust will not affect the special needs individual’s eligibility for government benefits. A First Party Special Needs Trust must include a payback provision. This means that any assets remaining in the trust upon the passing of the special needs individual must be paid back to the State to reimburse any government benefits expended for that person.
- Establish a Third Party Special Needs Trust: A Third Party Special Needs Trust allows family members to use their own assets to fund a trust for the benefit of an individual with special needs. The funds contained within the Third Party Special Needs Trust will support the individual with special needs while also not affecting their eligibility for government benefits. This trust does not contain a payback provision, allowing remaining assets to pass to other beneficiaries designated by the creator of the trust. This type of trust can be created during lifetime or under a will.
- Establish a Pooled Trust: A Special Needs Pooled Trust is a community trust managed by a non-profit organization which pools together and manages the funds of many special needs beneficiaries. The non-profit acts as the trustee and therefore can be a good option for small families or those seeking non-family member trustees. The money contained in the Trust does not affect eligibility for government benefits.
- Engage in Prudent Medicaid Planning: Medicaid planning is important to consider when creating your estate plan. Your child may need to enroll in Medicaid to cover their medical costs. There is a 60 month look-back period when applying for Institutional Medicaid. Any transfers made during the five year lookback period may result in a Medicaid penalty. However, transfers to a Special Needs Trust are one exception to this rule and generally incur no penalty whatsoever. Establishing a Special Needs Trust is one way to help preserve assets to cover quality of life items not covered by government programs.
- Consider Beneficiaries of Retirement Plans: While it may appear attractive to name your child as beneficiary of your retirement plan accounts, this may not be the best course of action. If your child has special needs and inherits a lump sum or income stream from your retirement account, their government benefits such as Medicaid or SSI will be put in jeopardy. Instead, name a Special Needs Trust as the beneficiary.
- Obtain Life Insurance Policies: Taking out a personal life insurance policy and leaving the payout to your child’s Third Party Special Needs Trust is a great way to leave your child with assets that will not affect their government benefits upon your passing. Term and permanent life insurance policies can be left to your child’s Third Party Special Needs Trust.
- Leaving Property to a Third Party: Parents may think leaving property to a third party, such as another child, to be used for the care of their child with special needs is a good idea. This is NEVER a good option. The third party is not obligated to follow your wishes as this is not legally enforceable and it leaves the use of your money up to the discretion of the third party, leaving your child with special needs wholly unprotected.
- Create an ABLE Account: Achieving a Better Life Experience (ABLE) accounts are modeled on the popular 529 College Savings Plans. An individual who was disabled before age 26 can deposit up to $14,000 per year into the account, which grows tax-free and can be used to pay for qualified expenses to maintain or improve quality of life. The ABLE account can also be funded by parents, family members and others who wish to contribute to the account. The funds in an ABLE account are not counted as a resource for most government benefit programs including Medicaid and SSI so eligibility for government benefits is not affected.
of the above planning tips have important consequences which must be considered
carefully before deciding the right plan for you and your family. To discuss your special needs estate plan with
a knowledgeable and compassionate attorney, contact Melissa Negrin-Wiener,
Partner at Cona Elder Law, for a consultation. She can be reached at 631.390.5000