If you are raising a child with a disability, whether physical or intellectual, it is important to think about how that child will be cared for when you are no longer there to do so. Parents and guardians of children with special needs, more than any other parent or guardian, need careful estate planning to be sure their children with disabilities are protected legally, financially and medically.
Importance of estate planning
Because many special needs children receive public benefits, such as Social Security Income or Medicaid, it is critical to arrange any inheritance so that those benefits are not impacted. You also want to be sure that your child’s finances are managed properly throughout their lifetime and ensure that there is adequate financial support should SSI or Medicare funding end or somehow become restricted. One of the best ways to protect your child is through a special needs trust.
What is a special needs trust?
A special needs trust places assets available to the child in an account that has strict limits on the trustee’s ability to withdraw funds. Because many special needs children are unable to manage their finances, the trust appoints a trustee who will manage those finances and make sure the child is financially protected. The trust can be created as part of your will, or it can be created separately while you are alive, something known as a living trust. A living trust helps you avoid probate, allows other family members to make contributions and allows the co-trustee to gain experience in management of the trust.
Revocable or irrevocable?
Another decision that must be made regarding a special needs trust is whether to make it revocable or irrevocable. A revocable trust names one or both parents as the trustee, giving you complete power over it. When you die, the trust distributes any property held to the beneficiaries as directed in the trust. If you are not concerned about income tax requirements or you need to maintain as much control as possible, you will want to create a revocable trust.
An irrevocable trust places assets into the trust, and they are no longer yours. Instead, they are controlled by the trustee and beneficiary. As the grantor, even if you are listed as the trustee, you cannot make changes to an irrevocable trust. If you are concerned about income tax requirements or you will have more than $1 million in the trust, an irrevocable trust may be the best option. Because of the complicated features of a special needs trust as well as other estate planning tools, it is critical that you speak to an attorney to guide you through the process.
As the parent or guardian of a special needs child, you know that your child needs additional protections while you are alive. Therefore, it is important that you consider what will happen to them financially, medically and legally after you pass away. An estate planning attorney may help you make the best decisions for you and your child.