All parents have certain considerations which must be carefully accounted for when crafting their estate plans. Estate planning however becomes even more complex and important when mental illness or disability impairs their child's ability to care for themselves. In particular, parents of special needs children must craft a plan that provides for the children's financial needs without disqualifying them for valuable government benefits. They must also provide a guardian who will manage the assets left to the children if the children are unable to manage their own affairs.
Special needs children and their unique estate planning requirements present a large and growing market. The US Census Bureau reports that 10% of American Families have a special needs child with an physical, emotional, or mental disability. Sixty percent of parents expect that these children will never be financially independent. These families will have to bear significant financial costs on behalf of their special needs children. These costs, associated with housing, basic living needs, and medical care are likely to endure throughout the child's lifetime. What may be most startling is that over 60% of these parents have not taken any steps toward planning for the child's financial future. Many have not even written a will.
The consequences of failing to plan for the financial well being of a special needs child can be "life altering" according to Nadine Vogel Vice President of MetLife's division of estate planning for special needs children, and mother of two special needs daughters. Vogel adds that "It's not about lifetime care, but about quality of life." For example: A disabled child, or an adult disabled since childhood, might be entitled to receive a monthly Supplemental Security Income (SSI) check from the Social Security Administration. This monthly income could range from several hundred dollars to several thousand dollars each month. The effect of any inherited assets on the child's ability to receive State or Federal benefits can be extreme. An individual could completely loose eligibility for this and other benefits, if he or she is left an inheritance as small as $2000 from the death of a parent. Such a result would be disastrous and the total opposite of what was intended when assets were left to the disabled family member.
The only way to ensure that assets left for a family member who is unable to manage their own finances due to mental, physical, or emotional disability may be to place them under the care of a qualified professional who will manage and conserve the assets for the beneficiary. The key here is selecting the right trustee. The trustee must walk a tight line in preserving the trust assets, providing for the beneficiary, and maintaining the beneficiaries eligibility for government programs. Excessive distributions from the trust could reduce or eliminate eligibility but a trustee who is too frugal would frustrate the parent's intent. Therefore, it is vital that the trustee be well versed in estate planning law as well as the rules governing the social security administration and the various state counterparts. The trustee should also communicate regularly with the beneficiary and be the "point person" coordinating the efforts of doctors, financial advisors, therapists, and government agencies. The funds in the trust must be prudently spent on items to enhance government benefits but must never appear to be replacing them.
There are many types of trusts and trust-like arrangements. However, the special needs trust stands out as the best option for managing the assets of special needs children while preserving the child's eligibility for government benefits. Since 1993 Congress has allowed individuals under age 65 with special needs to have trust funds set up with their own money and still have access to government benefits such as social security. These assets usually come from legal settlements or inheritances. This is a huge economic advantage for special needs individuals. As long as the trust assets are controlled by an independent trustee, the assets are not considered to be owned by the special needs individual and therefore would not prevent them from qualifying for government benefits. The key here is that the trust distributions are discretionary and that the trust beneficiary can not simply spend the money at will.
Parents of special needs children should also create detailed documents for finances or healthcare. Known as power-of-attorney or healthcare proxies, these documents can empower a parent or guardian to make healthcare or financial decisions for their adult children in the event they are incapable of making the decisions for themselves. Without these documents parents may not be able to get timely access to their children's financial or medical records or take swift action on their children's behalf.
It's also a good idea to create detailed instructions for that person who will care for the special needs child once the parent is no longer able to do so. These so-called "letters of guidance" leave specific information on the child's diagnosis, treatment history, and medications. Information on the child's likes and dislikes such as food preferences and favorite past times should also be included. Michael Gilfix, a California estate planning lawyer writes that the parent knows things about their children "that nobody else on earth knows... "This includes little things, like what breakfast food makes them happy or what breakfast food makes them really angry." These quality of life considerations could mean the difference between a basic existence and a lifestyle closer to that which the parent would've provided themselves. After all, that's what estate planning for special needs children is all about.
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