Last month we discussed the importance of keeping your special needs plan up to date and being prepared for changes in life circumstances which could affect your existing special needs plan. This article will focus on various important estate planning aspects to consider if you are a parent of a special needs child. For most parents of children with special needs, government benefits like Medicaid and Supplemental Security Income (“SSI”) are an invaluable resource. These benefits are contingent on a number of eligibility rules, such as the resource limit of the recipient’s assets. While many parents are familiar with these rules, many are not aware of the potential impact their personal estate plan may have on their child’s benefits.
Except in very limited circumstances, parents should not leave anything outright to their child with special needs
Parents of children with special needs can place their child’s government benefits at risk if they fail to create a sound estate plan. In general, when a parent passes away in New York without a will (known as dying “intestate”), his or her assets will be distributed according to state law. These laws generally result in a portion of the estate being left directly to the children of the deceased. Receiving these funds can put a child with special needs over the resource limit for many government benefits and render the child ineligible for assistance.
Except in very limited circumstances, parents should not leave anything outright to their child with special needs. Instead, a parent’s estate should flow through his or her will or trust into a special needs trust for the child’s benefit. Sometimes parents with multiple children will leave their entire estate to their children without special needs, in the hope that those children will take care of their sibling who has special needs. While this avoids the issue of gifting outright to a child with special needs, it often leads to bitter family disputes, and should be avoided if possible. Typically, a better option might be to leave assets outright to the rest of the family and establish a special needs trust to hold the share of the estate that was intended for the child with special needs.
A properly drafted special needs trust will protect the child’s benefits. In our aforementioned article entitled, “Keeping Your Special Needs Plan Up-to-Date,” we explained that there are two types of supplemental needs trusts (“SNTs”). An attorney can help in determining whether a first-party SNT or third-party SNT is the right option for your child, to protect his/her assets while maintaining his/her government benefits.
Life insurance and retirement plans should also be considered as effective planning instruments. However, if beneficiaries have not been designated for these assets, their distribution will be controlled by the parent’s will, or by state law if the parent dies without a will. This can lead to shares potentially being given outright to a child with special needs. A child’s share of these important assets can be placed into a special needs trust, but it is important to note that there are complicated issues; including tax considerations, which should be addressed before doing so.
It is also advisable to check with any relatives who may be leaving an inheritance to one’s children and make sure that they also speak with a qualified attorney before including a bequest to a child with special needs in their estate plans. When engaging in their own estate plan, it is critical that parents of individuals with special needs contact an experienced estate planning attorney who focuses on planning for individuals with special needs.
Ronald A. Fatoullah, Esq. is the founding attorney of Ronald Fatoullah & Associates, a law firm that concentrates in elder law, estate planning, Medicaid planning, guardianships, estate administration, trusts, wills, and real estate. Elizabeth Forspan, Esq. is the managing attorney of the firm. Eva Schwechter, Esq. is an associate attorney of the firm. The law firm can be reached at 718-261-1700, 516-466-4422, or toll free at 1-877-ELDER-LAW or 1-877-ESTATES. Mr. Fatoullah is also a partner with Advice Period, a wealth management firm, and he can be reached at 424-256-7273.