|Courtesy Kari Reine|
In common usage, "special needs" often refers to conditions first recognized in childhood, such as Down Syndrome, autism, or cerebral palsy. In estate planning, “special needs” encompasses a broader range of conditions including developmental disabilities, but also age-related conditions, physical disabilities, mental illness, diseases, and any other conditions that could qualify a family member for current or future government benefits. It is absolutely crucial that people who have special needs family members obtain an estate plan tailored to their unique needs. Below is an example of how a failure to plan for special needs children could be disastrous for a family's financial future (and how better planning could have prevented the situation):
Jonathan and Carrie live in Lisle, IL, with their eighteen year-old son, Braden, who has autism. Braden just graduated from high school, a major accomplishment in his life. However, his condition requires him to be constantly supervised, and he needs expensive weekly occupational therapy. He will never be able to have a job.
Jonathan and Carrie have provided a loving environment for Braden, and he is happy and doing well. His aunts and uncles (who live in Hinsdale and Downers Grove) frequently visit and help care for him.
Jonathan and Carrie are both data analysts at a corporation in Naperville. They have accumulated $200,000 each in their 401(k) plans, and have $100,000 in other savings. They worry about what will happen to Braden when they die. They have foregone taking vacations, purchasing a larger house, and always purchased clothing at thrift stores, all to save enough so that Braden will have a comfortable life.
However, with Jonathan and Carrie’s busy careers, they do not take the time to fully research the complexities of estate planning for disabled family members. Instead, they simply name Braden as the death beneficiary on their 401(k) plans, and sign a simple will transferring their remaining $100,000 to him.
Jonathan and Carrie (correctly) assume a guardian will be appointed to hold Braden’s property for his benefit after his death. However, they incorrectly assume that this guardianship will solve the problems with transferring money to Braden.
Jonathan and Carrie die suddenly in a car accident, leaving Braden dependent on his extended family. Soon after the tragedy, the extended family begins to realize what an enormous mistake Jonathan and Carrie made.
Braden’s condition had previously qualified him for Supplemental Security Income (SSI) and Medicaid. However, with an inheritance from his parents, Braden now exceeds the asset limits for these programs. He will now be forced to pay out-of-pocket for his expenses until he becomes impoverished, and can then obtain the benefits he once had. Given the severity of his condition and his need for constant care, his $500,000 inheritance will quickly be depleted.
Once his inheritance is gone and he is again on Medicaid and SSI, his uncles and aunts will constantly have to purchase goods and services for him to maintain his comfort and standard of living.
A Better Plan
Braden’s parents spent their working careers saving to provide him a comfortable life after they passed away. The last thing they would have wanted would be for him to lose medical and SSI benefits as a result of their plan, and to become a burden on their family.
Had Braden’s parents consulted a reputable attorney who specialized in estate planning, they likely would have decided to set up a supplemental needs trust for Braden.
Here is an example of how Jonathan and Carrie’s estate plan could have been structured: During Jonathan and Carrie’s lives, their 401(k) accounts would stay titled in their names, with a designation that after both of their deaths, the money go into their supplemental needs trust. Their $100,000 in savings could be retitled into a living trust, with instructions that the money would be transferred into the supplemental needs trust after the death of the second parent. During their lives, Jonathan and Carrie would both have full access to the money in their living trust. It is only after their deaths that the benefits of the trust would kick in.
After both parents die, all of Jonathan and Carrie’s money would flow into the supplemental needs trust. Once the supplemental needs trust is funded, the money will be held for Braden’s benefit by a third party (a trustee).
The trustee purchases services or items to help Braden feel comfortable. This could be food, housing, clothing, books, movies, or even travel tickets to visit family. However, the trust funds could not be used for medical services that would otherwise be covered by government benefits.
Because the trustee, not Braden, decides when money is to be spent on Braden (he has full discretion), and Braden does not own the money, the Government does not consider the assets to be Braden’s. Therefore, he qualifies for Medicaid and SSI, but still benefits from the quality of life for which his parents had worked so hard to save. Further, Braden is not a financial burden on his extended family because his parents planned ahead for him with a well-drafted supplemental needs trust.
Administering the Trust
The trustee of the supplemental needs trust needs to be careful to follow the instructions in the trust. The trust money does not directly belong to Braden, and if the trustee begins to treat it that way (for example, by writing a $20,000 check directly to Braden’s bank account), the trustee may disqualify Braden for benefits. If the trustee is unsure about how to properly do his job, he should seek help from a qualified wills, trusts, and estates attorney.
Another option is for the trustee to contact a nonprofit agency, like Life’s Plan in Braden's hometown of Lisle, that specializes in special needs trust management. Agencies like this can even take smaller trust funds and consolidate them into a pooled trust, to reduce administrative expenses for running the trust.
Families show their love to special needs relatives in amazing ways, often through a lifetime of dedicated service, patience, and kindness. Many families also make great sacrifices to save money to help their disabled loved ones maintain a good quality of life, even after the deaths of the non-disabled family members. Supplemental needs trusts can help secure a family’s goal to care for a disabled family member into the future.
Note: The information above is not legal advice and is not the basis of an attorney-client relationship. If you need assistance, you can hire an attorney to assist you with your individual legal needs.