Unique estate planning is necessary in order to correctly provide for special needs family members. There are numerous misconceptions in this area that can result in costly mistakes when planning for special needs beneficiaries. Understanding the pitfalls associated with special needs planning is a must for those who have loved ones with special needs.
Avoid Disinheriting the Special Needs Beneficiary. Many disabled persons receive Supplemental Security Income ("SSI"), Medicaid or other government benefits to provide food, shelter and/or medical care. The loved ones of the special needs beneficiaries may have been advised to disinherit them - beneficiaries who need their help most - to protect those beneficiaries' public benefits. But public benefits rarely provide more than basic needs. And this solution (which normally involves leaving the inheritance to another sibling) does not allow loved ones to help their special needs beneficiaries 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 special needs beneficiary.
- Procrastinating Can be Costly for a Special Needs Beneficiary. None of us know when we may die or become incapacitated. It is important for loved ones with a special needs beneficiary to plan early, just as they should for other dependents such as minor children. However, unlike most other beneficiaries, special needs beneficiaries may never be able to compensate for a failure to plan. Minor beneficiaries without special needs can obtain more resources as they reach adulthood and can work to meet essential needs, but special needs beneficiaries may never have that ability.
- Don't Ignore the Special Needs of the Beneficiary When Planning. Planning that is not designed with the beneficiary's 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 special needs beneficiary 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 disabled person can also receive electronic equipment & appliances, computers, vacations, movies, payments for a companion, and other self-esteem and quality-of-life enhancing expenses - the sorts of things families now provide to their child or other special needs beneficiary.
- 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 to the beneficiary's particular needs. Thus the beneficiary fails to receive the benefits that the parents or others provided when they were alive. Further, make sure you are using the right type of Special Needs Trust for the situation. A 1st Party Trust, which is funded with the individual with disabilities own assets, must contain a payback provision to repay government benefits at death. However, a 3rd Party Trust, which is funded by a parent, grandparent or other family member for the benefit for the individual with disabilities, does not need to have a payback provision. Hence 3rd Party trust assets can pass to other family members at the beneficiary's death.
- Use Great Caution in Choosing a Trustee. Loved ones or family members can manage the special needs trust while 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 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.
- 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 bequests to the trust as part of their estate plan. For example, these family members and friends can name the special needs trust as the beneficiary of 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 trust exists, or that they could contribute money to the special needs trust as an inheritance upon their death.
- Relying on Siblings to Use Their Money for the Benefit of a Special Needs Child Can Have Serious Adverse Effects. Many family members rely on their other children to provide, from their own inheritances, for a child with 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 with special needs after the death of the parents or when siblings have their own expenses and financial priorities. What if an inheriting sibling divorces 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 with special needs. What if the sibling dies or becomes incapacitated while the child with special needs is still living? Will his or her heirs care for the child with special needs as thoughtfully and completely as the sibling did? Siblings of a child with 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.
- Bonus Tip: Stay Up to Date on Changes in the Law the rules applicable to special needs trusts are constantly changing.