Estate planning is obviously a concern for all parents, but if you have a child with special needs, it is crucial that you are aware of the unique considerations that go into planning for a child who may be dependent on you at some level for their lifetime. If your child has special needs, it is important to understand exactly what’s necessary to provide for the emotional, physical, and financial needs of your child, in the event of your own eventual death or potential incapacity.
When creating your estate plan, there are two major considerations for you to focus on: 1) Who would care for your child if and when you cannot (also known as guardianship), and 2) How will your child’s financial needs be met when you are not there to meet them.
Naming Legal Guardians For A Lifetime Of Care
The first and most critical step in ensuring the future well-being of your child with special needs is to name both short and long-term legal guardians to take custody of and care for your child in the event of your death or incapacity. And as you well know, if your child will never become fully capable of independently caring for him or herself, your parenting responsibilities will continue on long after your child reaches adulthood.
Although this lifetime responsibility likely feels overwhelming, we’ve been told repeatedly by our clients who have a child with special needs that naming legal guardians and knowing their child will be cared for in the way they want, by the people they want, creates an immense sense of relief. Not only that, but we often build in unique plans through which the named guardians are carefully instructed—and even incentivized—to give your child the same level of attention and care you provide.
For example, we have created plans in which the named guardian is compensated for taking your child to dinner and the movies every week or participating in some similar activity if this is something your child enjoys doing with you. However, without written instructions (and perhaps compensation) built into your estate plan, fun activities like this are often neglected once you are no longer there.
We can guide you through the process of selecting the individual(s) best suited to serve as legal guardians and creating the proper instructions for them to provide your special needs child with the same level of care as you.
Providing For Your Child’s Financial Future: Special Needs Trusts
Beyond naming legal guardians for your child with special needs, you’ll also need to provide financial resources to allow your child to live out his or her life in the manner you desire. And this is where things can get tricky for children with special needs.
In fact, it may seem like a “Catch-22” situation—you want to leave your child enough money to afford the care and support he or she needs to live a comfortable life, yet if you leave money directly to a person with special needs, you risk disqualifying that individual from much-needed government benefits like Medi-Cal and Supplemental Social Security Income (SSI).
Fortunately, the government allows assets to be held in what’s known as a “special needs trust” to provide supplemental financial resources for a physically, mentally, or developmentally disabled child, without affecting his or her eligibility for public healthcare and income assistance benefits. However, the rules for such trusts are complicated and state specific, so care should be taken to ensure that a special needs trust is set up in accordance with all applicable laws.
Setting Up The Trust
Funds from a special needs trust cannot be distributed directly to your child, and instead must be disbursed to a third party who is responsible for managing the trust. Given this, when you initially set up the trust, you will likely be both the Grantor (trust creator) and Trustee (the person responsible for managing the trust), and your child with special needs is the trust’s Beneficiary.
You’ll then name the person you want responsible for administering the trust’s funds upon your death or incapacity as the Successor Trustee. To avoid conflicts of interest, overburdening the legal guardian with too much responsibility, and providing a system of checks and balances, it may be a wise decision to name someone other than your child’s legal guardian as a Trustee.
As the parent, you serve as the Trustee until you die or become incapacitated, at which time the Successor Trustee takes over. Each person who serves as Trustee is legally required to follow the trust’s terms and use its funds and property for the benefit of your child with special needs.
Additionally, you should name multiple Successor Trustees—which can even be a trust company, bank, or another professional fiduciary—as backups in case something happens to prevent the individual you’ve named as primary Trustee from serving.
There are two ways to set up a special needs trust. In the first option, we build it into your revocable living trust, and it will arise, or spring up, upon your death. From there, assets that are held in your living trust will be used to fund your child’s special needs trust.
In the other option, we can set up a special needs trust that acts as a vehicle for receiving and holding assets for your child right now. This option makes sense if you have grandparents or other relatives who want to give your child gifts sooner rather than later.
Finally, it is important to ensure that the trust will have sufficient funds to last throughout the life of your child. One common method to provide funding is for you (or another loved one) to name the special needs trust as the beneficiary of your life insurance policy. Another way is for family members and friends to make donations or gifts to the trust and/or include it as a beneficiary in their will.
We can discuss with you all of your available options for ensuring your child’s special needs trust has sufficient funds to last for his or her lifetime and for guidance on the estate planning vehicles best suited for passing money to the trust.
The Trustee’s Role
Once there is money or other assets in the trust, it is the Trustee’s job to use the trust funds to support your child without jeopardizing eligibility for government benefits. To ensure this is handled properly, the Trustee must have a thorough understanding of how eligibility for such benefits works and stay current with the ever-changing laws. The Trustee is also required to pay the beneficiary’s taxes, keep detailed records, invest trust property, and stay current with the beneficiary’s needs.
Given this immense responsibility, it is often advisable that you name a legal or financial professional who is familiar with the complexities of the law as Trustee or Co-Trustee, so they can properly handle the duties and not jeopardize your child’s eligibility for government benefits. Alternatively, we can advise your named personal Trustee on how to manage the Trust.
Your Trusted Source For Special Need Planning
If you have a child with special needs, meet with us for trusted guidance and support in creating a special needs trust and other estate planning vehicles for your child. We offer an array of estate planning strategies that are designed to accommodate the unique needs presented by a child with special needs and their families.
