If you have a child with special needs, there are some things you absolutely must know about estate planning. First, failing to plan will jeopardize any needs-based government benefits your child receives. That’s because California law (i.e., the laws of “intestacy”) will determine how much your child gets from your estate. Think of everything you own going in shares to all of your children, including your child with special needs. He or she will suddenly have a lot of assets counting against the SSI and Medi-Cal limits.
Second, your best planning option will likely be a revocable living trust that takes care of you and your dependents while you are alive and then directs your special needs child’s share into their own special needs trust if you pass away. A correctly drafted special needs trust will not only preserve your child’s access to benefits, it will also ensure those needs that aren’t covered by government assistance are covered. If appropriate, your child will travel, experience cultural events, play sports, have better transportation, receive better care, and even have cable TV. Who can live without cable TV?
Third, don’t think that leaving everything to your typically achieving children will solve everything for you. Nothing causes more tension and destroys family relationships faster than forcing one set of children to take care of a sibling, especially one that requires particular care. A special needs trust can provide the structure for your whole family to live in harmony after you are gone. Plus, if you leave funds to your typical achievers expecting them to care for your other child, know they could lose that money in a divorce or lawsuit or to creditors. If they die before your child with special needs does, the money you leave them may go to their beneficiaries and be unavailable for the person with special needs.
Fourth, remember that other family members could also end up leaving money to your child with special needs. For example, if you died before your parents, any money they were planning to leave you could end up going under their plan (or by law) to your child. That’s likely to be just as risky as if you left the money to your children "free of trust." In other words, make sure your parents (and other family members) know they should name your child’s special needs trust as the beneficiary and never give anything outright to the child.
Fifth, and this is where it can get pretty complicated, make sure that the special needs trust is designed to receive any income from qualified retirement accounts (e.g., IRAs and 401(k)s) and any proceeds from life insurance. There are some pretty hairy tax issues to work through, especially with respect to those IRAs and company retirement plans.
We do special needs planning in our office. Our goal is to make it as easy as possible for our clients, knowing that they (like any parent) have very busy lives. If you know someone with a child who has special needs, we would love to help. In addition to doing their vital estate planning, we can connect them to some great financial planners who specialize in ensuring that beneficiaries with special needs have what they need to thrive.
© 2008 Brian D. Wyatt, A Professional Corporation (All Rights Reserved)
