This section will discuss ways to plan for the financial security of a person with disabilities, including after parents have passed on. Submitted by Gary Napel, Financial Planner. Population: Any age.
Parents of children with disabilities realize that there is a good chance that their children will outlive them, yet most parents have made no plans for their child's financial future. While many children with disabilities will require life time care, their parents have not even prepared a simple will. However, many parents believe that they have so few assets that an estate plan is not necessary. On the contrary, you do not have to be rich or old to plan. We often have many more assets than we realize!
For a child with disabilities that is currently receiving some form of government benefits, leaving a simple inheritance, or not providing for them in a special will could affect their benefits. There are strict government eligibility rules that do not allow people with disabilities to accumulate more than $2000 in assets. Receiving an inheritance could put the person over the limit and may make them ineligible for future benefits. By using proper planning methods, such as a Special Needs Trust (SNT) with specific beneficiary designations, parents can preserve future government benefits and at the same time provide a life time of quality care for their child.
Providing for Children
How do we, as parents, provide for our child after death? There are a number of possible ways; some less desirable than others.
However, the manner in which assets are distributed and who assets are distributed to must be planned correctly so that they will not jeopardize government eligibility for benefits.
Trusts, in general are a legal entity which permits one person (the Donor) to give something to a second person (the Trustee), with the requirement that it must be used for the benefit of someone else (the Beneficiary). The donor?s assets are owned by the trust and the trustee is usually given the power to manage those assets (e.g. to sell assets, to invest trust funds, etc.). The assets can be used for the benefit of the Beneficiary in specific ways.
Special Needs Trusts
By far the most popular, as well as the most effective estate planning tool developed in the last 10 years is the Special Needs Trust (SNT). The SNT is created to manage resources for the benefit of the individual with disabilities, while it maintains the individual?s eligibility for public assistance benefits such as Supplemental Security Income (SSI), Medicaid and Foodstamps. For government eligibility purposes, the assets in the SNT are not counted as belonging to the Beneficiary because they are owned by the trust. The Beneficiary has no legal right to say, how the money is spent, nor do they have direct access to the Funds.
The purpose of the SNT is to enhance the quality of life of the person with the disability, it is not meant to subvert or to supplant government benefits. Items such as food, clothing and shelter cannot be purchased by the trust or it will be considered as income to the person and may make them ineligible for their benefits. However, the trust can purchase additional support services such as therapy, transportation, education, equipment, maintenance expenses, trips and vacations and other items to enhance the individual?s quality of life, as well as provide a higher quality of medical or dental care.
The SNT should be part of a future care plan which includes the management of property and the arrangement for personal care, vocational (job training) services, housing, and case management. In addition to creating the Trust document, it is extremely important that the family consider how the Trust will be adequately funded. The trust must be able to meet the needs of the individual with disabilities. In the event that the family has insufficient resources to adequately fund the Trust, life insurance should be considered. Life insurance benefits can ensure that money needed for the care of the individual will be there when the parents are gone. Death benefits are usually free of income tax and avoid probate, and premiums can be budgeted for now while the parents are alive and healthy.
Trusts are based on law and require specific language in order to protect the benefits of an individual with disabilities. A qualified attorney should always be used to draft the necessary documents such as a Will and a Trust. A general rule of thumb would be to start with an attorney who specializes in government benefits and/or Special Needs Trusts. Attorney?s fees may run from $1000 to$ 2000, but will vary from region to region.
Financial planners who specialize in special needs planning and are familiar with the issues can be a great resource for the parents as well as some disability related nonprofit organizations. It is important that you take the time today to provide for your child's tomorrow. Every parent wants to ensure that the ongoing care and needs of their child with disabilities will be addressed when they are not around to do so themselves.