Estate planning tips for parents of children with special needs.
Published: August 31, 2015
By: Melanie Bradford
This article is intended for general educational purposes and is not to be regarded as legal advice. Seek counsel for your specific situation from an experienced estate planning attorney.
Parents of disabled children juggle many daily demands to provide for the needs of their children. Often, even though the parents know estate planning is important, it is pushed to the bottom of the “to-do” list. While this is understandable, it is very dangerous for a parent to gamble that the parent will not die prematurely; or worse, that both parents die prematurely in a tragic event. The same is true for aging parents as plans must be made for what happens to the child when the parent dies.
THE FIRST STEP: Parents need to answer: Who will be responsible for caring for my child’s physical, medical, and social needs when I die or become disabled? Parents also need to answer: Who will be responsible for managing my assets for my child’s benefit when I die or become disabled? The same person may serve in both roles, or the parent may appoint different people to serve in those roles. For example, Aunt Sally may be a great caregiver but a horrible money manager. If that is the case, the parent may want to appoint Aunt Sally as the caregiver but appoint a professional trustee to manage the money.
REVIEW YOUR ASSETS: What do you own? Do you have enough liquid assets to take care of the disabled child? Is the bulk of your assets tied up in the family home? If so, where will the money come from to take care of the child? Where will the child live if the home must be sold to provide for the child’s needs? Do you have life insurance? Do you have enough life insurance to provide for the child’s needs during his or her lifetime?
TAKE CARE OF YOURSELF: Who will provide for your care if you become disabled through an accident or an illness, such as Alzheimer’s? Decide who will handle your financial matters and health care matters if you become disabled and appoint an agent through a durable power of attorney. Decide what will happen to you if life support or artificial nutrition becomes an issue if you are terminal or in a permanent vegetative state. Do you want a living will, (Advanced Health Care Directive) or do you want your agent to make these decisions?
YOUR LONG-TERM CARE: Do you have long term care insurance to provide for your needs so your assets are not depleted caring for your needs? Remember your estate plan only covers what you own at death. If your assets are exhausted providing for your care during your lifetime, your child may not inherit anything.
THE CRITICAL STEP – MAKE IT LEGAL: It is not enough to answer these questions. Parents need to be certain that their wishes are set out legally. Telling your family verbally what you wish to happen will not be sufficient. Without a Last Will and Testament or a Living Trust, Alabama state law will determine how your estate is distributed. Further, Alabama state law will determine who becomes guardian of your child. To exercise your right to make those decisions, you must have the proper legal documents.
It is important for all individuals to receive proper legal guidance to implement an estate plan. However, it is especially important for parents of disabled children. Do not attempt to write legal documents yourself, purchase forms, or copy something from the Internet or any other source. Too much is at stake. You need legal counsel that is experienced in dealing with estate planning for families with disabled members.
DON’T FORGET THE SPECIAL NEEDS TRUST: Parents with disabled children cannot afford to leave assets directly to their disabled child or even to another family member with instructions to take care of the child. Why? Leaving assets directly to the disabled child will likely cause the child to have too many assets to qualify for SSI and Medicaid. Leaving assets to another person in the hopes that the other person will care for the child is dangerous as the person could be sued and lose the assets, get a divorce and lose the assets, or decide to be stingy and keep the assets.
Establishing a Last Will and Testament or Living Trust that has a Special Needs Trust component protects the disabled child. The child will benefit from the assets placed in the trust, but the trust will not be considered when the government reviews the case to see if the child meets financial program requirements.
If the parent establishes the trust inside the parent’s Last Will and Testament or Living Trust, the parent gets to determine what happens to any remaining assets at the disabled child’s death. In other words, the parent may state that any remaining assets go to the disabled child’s siblings when the disabled child dies.
If the parent fails to establish a trust, as stated before, the assets will likely prevent the child from getting additional government benefits. This can be remedied by having a guardian for the disabled child place the assets into a special needs trust. However, in this instance, the trust would need a Medicaid pay-back provision that states Medicaid is reimbursed for any benefits it has provided for the child at the time of the child’s death. If any assets remain after Medicaid is reimbursed, the assets can be distributed to other individuals. Obviously, it is much better for the parents to establish the trust in their estate planning documents.
NAME A TRUSTEE: A special needs trust is governed by federal and state law. A trustee must have knowledge of these laws to properly administer a special needs trust. It is not advisable for a family member or friend to try to administer the trust without professional guidance.
Professional trustees are usually named to administer a special needs trust. A low-cost option for many families is the Alabama Family Trust. The Alabama Family Trust is a non-profit 501(c)(3) company, located in Vestavia Hills that serves the role of trustee for special needs trusts.
The role of Alabama Family Trust is to make certain the money is distributed properly so the child has his or her supplemental needs met; but, does not lose government benefits. The board of trustees is made up of experienced elder law attorneys and other professionals with knowledge of social security and Medicaid regulations. Parents have the peace of mind that the trustee will be there long-term for the disabled child and that the money will be managed properly. Fees are very minimal. The initial set-up fee and a 1/6 percent annual administrative fee on the income earned (not the principal) are much lower than other professional trustees. In oversight at an affordable price. For more information about Alabama Family Trust, or for information about fees and requirements to establish a trust, go to www.alabamafamilytrust.com.
Melanie B. Bradford is a local attorney and Executive Director for Alabama Family Trust.