Estate Planning Tips for Families with Special Needs
Written by Kristen M. Lewis Thursday, January 06 2011
Disabilities affect families in all socio-economic strata. Everyone knows someone who is challenged by a disabling condition – whether it is a physical, mental, or intellectual disability that is no one’s fault (Down syndrome or autism) or one that is caused by the actions or inactions of third parties (a personal injury scenario).
Addressing the special needs that result from such disabilities can be a tremendous challenge. Families trying to secure the future of loved ones with disabilities are becoming fierce advocates as they assemble teams of allied professionals with specific expertise designed to address all aspects of current and future care.
An essential member of the team is an attorney who recognizes the myriad issues implicated by the disabling condition of an heir or other intended beneficiary under a family’s estate plan. In most cases, one or more special needs trusts (SNT) will serve as the foundation of an effective plan designed to maximize the options available for those with disabilities. Thus, families of modest means and those of great wealth are increasingly engaging in SNT planning.
Many traditional estate planning attorneys are uninformed about SNTs and the complexities of planning for persons with disabling conditions. Although planning for families challenged by the special needs of beneficiaries with disabilities can be complex, there is some basic, yet essential, advice that every family must consider and address as part of the process.
Do not disinherit the beneficiary with special needs. This is an outdated and incorrect approach that many traditional estate planners still espouse. Properly drafted SNTs can supplement, not supplant, any means-tested government benefits for which the beneficiary is otherwise eligible as a result of her disability.
Know the difference between government benefits that are means-tested and those that are based on a worker’s employment history. Although an SNT is designed primarily to preserve means-tested government benefits for which the beneficiary is eligible as a consequence of her disability (for example, Medicaid and supplemental security income for persons of limited resources), the SNT must also be coordinated with employment-based benefits (for example, Medicare and Social Security disability income, which typically derive from the work record of the beneficiary’s retired, disabled, or deceased parent). Many traditional estate planning attorneys do not recognize this distinction. Indeed, some families also need to be educated about this important point.
Furthermore, even if the SNT beneficiary does not need to rely on Medicaid for health insurance coverage, there are many programs for which a person must be Medicaid eligible to participate – for example, life skills programs designed to maximize the beneficiary’s independence.
Know the difference between a first-party and a third-party SNT. The rules that apply to first-party or self-settled SNTs (that is, those funded with assets that legally belong to the beneficiary with special needs) are much more stringent than those that apply to third-party SNTs funded with assets which derive from someone other than the beneficiary. Most families must establish both types of SNTs as part of an effective plan.
Select an appropriate trustee for SNTs. Serving as the trustee of an SNT is not for the faint of heart. Whether the SNT is established under a will or during life, there are numerous traps for the unwary in administering an SNT. Professional trustees are strongly recommended, either to serve as sole trustee or as a co-trustee with a family member or other individual.
Consider an appropriate allocation of estate assets to fund an SNT, which may not necessarily be an equal split among the beneficiary with a disability and those without disabling conditions. Although it is easy to recognize that a beneficiary with special needs will likely require a larger share of the family’s resources, it is often a difficult decision for a family to augment that beneficiary’s share at the expense of able-bodied siblings or other beneficiaries. However, since most families have numerous asset pools and sources of funding for the ultimate benefit of all of their beneficiaries, there are usually several creative options to assuage any concerns along these lines.
Coordinate beneficiary designations for non-probate assets. Although clients are well aware of the need to utilize SNTs for probate assets passing under a will for the benefit of a beneficiary with disabilities, many neglect the necessary coordination of assets that are not subject to the terms of a will, for example, life insurance, qualified plan accounts such as IRAs or 401(k)s, and certain joint assets, which typically pass by means of separate beneficiary designation forms or by operation of law. This can completely destroy a special needs plan.
Coordinate the estate plans of other family members who may wish to benefit the beneficiary with special needs. Once a family has decided to maintain the eligibility of a beneficiary for means-tested government benefits, the family must work closely with other well-intentioned relatives who may wish to help secure the future of that beneficiary.
The process becomes a veritable joint venture which can be facilitated by the estate planning attorney in a diplomatic and cost-effective manner that does not require each and every family member to include an SNT under their own estate plans.
Assemble a team of allied professionals to help secure the future of a beneficiary with special needs. In addition to an estate planning attorney who is familiar with the legal requirements for SNT planning, the following allied professionals are valuable members of the team:
- A life care planner or care manager
- A life insurance professional who is familiar with the distinct challenges faced by family members with special needs
- An investment adviser who knows how to manage funds for beneficiaries with special needs, taking into account their generally lower investment risk tolerance
- A government benefits specialist and claims processor
- A special needs advocate
- A special education expert to assist in developing an individualized education plan for school-aged beneficiaries with special needs
- A home accessibility specialist
- An accountant who is familiar with the deductions to which families may be entitled as a consequence of special needs expenditures
The estate planning attorney often serves as the quarterback of this team of allied professionals and makes recommendations and referrals for team members. This process is truly a team effort.
Appoint an appropriate guardian for the beneficiary with special needs. Many parents do not realize that they can and should designate a guardian under their wills for an adult child with disabilities. Many do not realize that once a child attains 18 years of age, they no longer have the legal right to make health care decisions unless and until they qualify as a court-appointed guardian. Taking steps to secure the appointment of a parent or other person as the child’s legal guardian during the parents’ lifetime, coupled with a testamentary successor guardian appointment to take effect once that parent or person dies, provides complete protection for the adult child with disabilities.
Consider estate planning for the adult child with disabilities. Many adult children with disabilities are legally capable of signing their own wills and disability documents, to the extent that their disabling conditions do not unduly impair their testamentary or contractual capacity. The appointment of a guardian or conservator for a person with a disability does not in and of itself remove the right to make a will or to execute a financial power of attorney or health care directive.
Kristen M. Lewis is counsel in the Atlanta office of Smith, Gambrell & Russell in the estate planning and wealth protection group. She is a member of the Academy of Special Needs Planners and co-chair of the Long Term Care, Medicaid, and Special Needs Trusts Committee of the Elder Law, Disability Planning, and Bioethics Group of the Real Property, Trusts, and Estates Section of the American Bar Association. She has been a frequent lecturer and author on personal planning opportunities, with special expertise in planning for persons with disabilities.
Lewis received her bachelor’s in French and political science, with highest honors, from Wellesley College in 1981. She earned her J.D. degree from Cornell Law School in 1984.
