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You Don't Have to Disinherit Your Special Needs Family Member

Michael Geis, CFRE, FAHP at Thompson & Associates

You Don't Have To Disinherit Your Special Needs Family Member

Families with children or siblings with intellectual disabilities are presented with many unique challenges and opportunities. Procuring appropriate educational, recreational, medical and employment opportunities can involve a lifetime of pursuing services and programs that are necessary to meet the particular needs of a loved one with intellectual disabilities. Estate planning for a “special needs” individual is no exception, particularly if the person qualifies for some form of public assistance.

Too often, parents or financially responsible persons entrusted with the care and management of their disabled loved one are advised to “disinherit” their loved one or essentially leave them out of the will. Their advisors tell them that directing assets to these individuals could result in them receiving an inheritance that provides resources beyond the allowable income and asset levels which terminates their public assistance.

Tragically and painfully, parents or responsible parties consent and live with the reality that this person is unable to receive the same as they would intend for other family members. This is particularly worrisome for parents that fear they will predecease their loved one with disabilities, and they are perplexed as to how to provide for them should public assistance diminish or cease to be available.

The good news is there is a way that families, friends and financially responsible individuals can assure their disabled loved one a quality of life beyond what public funding can provide. This can be accomplished through the creation of a “special needs”, or “supplemental needs” trust, that is managed by a financially responsible person solely for the benefit of the disabled individual.

While public funding provides shelter, food, transportation and clothing; the earnings from a special needs trust improve the overall quality of life for the disabled loved one. The vital components of a special needs or supplemental needs trust include a donor that supplies the funds for this trust; a trustee that agrees to hold and administer the funds according to the donor’s wishes and a beneficiary or beneficiaries who ultimately receive the benefits of the trust.

Critical to the establishment of a special needs trust is the language utilized in drafting this document. A “third” party trust is the most commonly used trust that holds a widerange of assets such as a house, stocks, bonds and additional investments. The assets do not affect an SSI beneficiary’s eligibility for benefits. In addition, the trust earnings can be used to pay for the beneficiary’s supplemental needs beyond those covered by government benefits.

The trust is typically put toward education, recreation, insurance, counseling, medical attention and dental expenses just to name a few. If the trust is sufficiently funded, the beneficiary may receive spending money, electronic equipment, appliances, computers and other items.

The first step is to determine the amount to set aside based on the goals and expectations for the disabled individual’s future. Next, the individual’s future income sources and living expenses should be identified. It’s important to consider income from life insurance proceeds, gifts, inheritances and legal settlements as well as anything from employment and public benefits. Here is a broad list of expenses to consider:

There are expenses that the special needs trust cannot cover. If money from the trust is used for food or shelter on a regular basis or if funds are distributed directly to the beneficiary, such payments will count as income to the beneficiary. This ultimately can affect eligibility for government benefits such as Medicaid and SSI. If the beneficiary receives SSI, here are some basic expenses that should not be paid through a special needs trust:

Families should select a trustee who has the expertise in managing the trust and who will make proper investments, pay bills, keep accounts and prepare tax returns. Families also have the option to designate a professional trustee and a family member as co-trustees if they are uncomfortable with the idea of an outsider managing a loved one’s affairs. The trustee may also hire a “protector”, who has the power to review accounts and hire/fire trustees, or a trust “advisor” who instructs the trustee on the beneficiary’s needs.

The beauty of a “supplemental needs trust” is that it offers parents and financially responsible persons the option to treat their disabled loved one the same as the rest of their family. If the desire is to distribute their combined wealth equally, the proportionate share can be directed to a special needs trust for the benefit of their disabled family member.

Parents enjoy peace of mind knowing the special needs trust will supplement public funding during the disabled person’s lifetime. Once the trust has served its useful purpose, the remaining assets can be divided equally according to surviving family members with an equal share directed to the organization or organizations that were instrumental in caring for this person. Parents interested in giving the remaining principle to a designated charity can do so in the form of a legacy gift that perpetuates the memory of their disabled one.