Financial and Estate Planning for Families with Special Needs

For those who love and care for an individual with special needs, every day brings situations both exhilarating and frustrating. As if daily life didn't bring its share of unique challenges, families with special needs also have very particular estate and financial planning concerns. How can a parent help ensure their loved one has adequate resources to lead the lifestyle they intend even after they passed away or can no longer care for their child?

Among the most pressing concerns facing parents of children with a special need is determining where a child with special needs will live upon reaching adulthood. The choice often depends on the extent of the care required, the resources available in the new home where services will be provided and the amount of money needed to fund the preferred option. How do parents balance the need to provide for their child with a special need without compromising the lifestyle of other family members or their own retirement?

Financial relief can come in many forms as many families must rely on public assistance to help make ends meet. Means-tested public assistance programs, such as Medicaid and Social Security, are available for certain qualified individuals. These benefits are intended to support the individual's basic needs, such as housing, food, clothing and a certain level of health care. The challenge for parents is to figure out how to maintain eligibility for these benefits while providing financial support for other needs, such as trips to visit other family members, reading materials, summer camps, some assistive technology and some over the counter medicine not otherwise covered.

How can a parent adequately provide for their loved one without compromising valuable government benefits or sacrificing other financial goals such as college and retirement? One strategy is to create a special needs trust (SNT). SNTs attempt to ensure that any payments made from the trust will not disqualify the loved one with special needs from receiving ongoing benefits. A properly drafted SNT (there are different types) can insulate a loved one's assets to maintain Medicaid eligibility while funding supplemental care and services not covered. The funds from these trusts are not designed to replace government funding but to supplement those needs.

The SNT also provides flexibility for other sources of funding. For instance, the SNT would allow other family members to bequeath property or other assets to help fund the trust. Gifts from other family members could be placed in the SNT and insulated from Medicaid eligibility. The death benefit from a survivorship life insurance policy could fund an SNT after both parents have passed away - typically the time when the funds would be needed most. Once the SNT is created, parents must be sure to tell other family members to name the SNT as beneficiary for bequests and gifts to be sent directly to the SNT, rather than the child, to prevent disqualification from Medicaid eligibility.

Possibly the most important benefit of the SNT is that it helps to keep the parents' retirement intact. Parents of a loved one with special needs often put themselves at risk by thinking their assets will be sufficient to cover their child. The reality is that the parents need their assets to fund their own retirement. Parents must be careful to design and fund the SNT in such a way that it will not be dependent on their retirement assets.

SNTs are complex legal instruments that require specific language to realize maximum benefit without running afoul of Medicaid regulations. Be sure to consult an experienced elder law or estate planning attorney with experience drafting special needs trusts. 

In subsequent blogs, I will discuss different methods of funding SNTs, as well as some best practices and practical considerations of implementing this important planning instrument. 

If you have any questions or concerns, please post them here, e-mail me at jmahoney@aspencross.com or call me at 508-870-0440, ext 187.