Parents of disabled children have unique estate planning needs. How they plan can greatly impact their child’s eligibility for public benefits and overall quality of life. Estate planning for parents of special needs adult children must be done strategically and thoroughly to achieve the best result. At Batson Nolan PLC, we can help you create an estate plan that meets the needs of your disabled child.
Why Does Estate Planning for Parents of Special Needs Adult Children Matter?
There are many important considerations when creating an estate plan that involves disabled children. Some questions you may be asking are:
- How do I fairly distribute my assets between my children?
- How do I ensure my disabled child’s inheritance is properly managed?
- How do I leave enough funds to sustain my special needs child?
- How do I provide for my disabled child without burdening my other children?
Another significant factor in estate planning for special needs adult children is their access to public benefits. Disabled children who meet certain disability and income requirements can qualify to receive federal and state public benefits. For example, Social Security Disability Insurance (SSDI), Supplemental Security Income (SSI), and Medicaid are types of public benefits that offer financial support for persons with disabilities. These programs all have income thresholds for the disabled person to meet. Thus, when estate planning for your special needs adult child, you must be careful when leaving assets to them. Without strategic planning, your child’s inheritance could disqualify them from receiving public benefits.
At Batson Nolan PLC, we’re here to answer your questions about special needs planning. We guide our clients through their estate planning options and help develop a unique strategy that works for the entire family.
Estate Planning Options for Parents of Special Needs Adult Children
For parents of special needs children, there are several estate planning options to consider. Keep in mind that what we discuss below is not exhaustive. Just like each family is unique, each estate plan is different and may require specific techniques and tools.
Disinherit Your Child
Parents may forego leaving an inheritance for their disabled child for any of the following reasons:
- The child’s inability to manage the funds or assets,
- The belief that the child will receive enough assistance through public benefits, or
- The child’s siblings will care for them.
There are several issues and risks when taking this approach. First, public assistance is not always adequate. The special needs adult child may require additional resources. Second, the care and support that the disabled child needs today may be different in the future. Lastly, relying on a child to care for their sibling may strain the relationship. This kind of responsibility can become burdensome and result in a lack of care for your child with a disability.
Leave a Gift
Another option is to make an outright gift or bequest of assets or money to the disabled child. The potential problem with this strategy is the amount of the gift may disqualify the child from receiving public assistance. Additionally, the child’s needs may change over time, and the gifted amount may not adequately provide for the special needs child.
Create a Special Needs Trust
Establishing a special needs trust (SNT), or supplemental needs trust, is often the best option. With a trust, you create an entity (the trust) to own property and appoint someone (the trustee) to manage the property for the benefit of someone else (the beneficiary). Rather than make an outright gift, you put the property into a trust.
An SNT satisfies two main concerns: it allows for proper management of funds on behalf of the child and protects the beneficiary’s eligibility for public benefits. For purposes of qualifying for government assistance programs, the trust property is ignored.
Types of Special Needs Trusts
There are three types of special needs trusts for persons with disabilities.
A self-settled SNT (also known as a first-party or payback trust) is an irrevocable trust funded with the disabled person’s assets or income. Federal law governs this type of trust and requires the following:
- The beneficiary be under age 65 at the time of creating and funding the trust;
- The trust is irrevocable; and
- The trust must contain a “payback” provision where the state agency administering Medicaid be paid back upon the beneficiary’s death.
This type of trust is often used when the beneficiary receives a personal injury settlement or direct inheritance.
A third-party SNT is what parents typically use when they want to establish and fund a trust for their special needs child. The main difference between third-party and self-settled trusts is that the trust funds belong to someone other than the beneficiary. Unlike with a self-settled trust, there’s no age restriction or payback provisions with a third-party SNT.
With a pooled SNT, a nonprofit organization administers the trust on behalf of several individuals with disabilities. Their assets are combined (or “pooled”) and can help people with special needs qualify for public benefits. There are no age restrictions, and these trusts can be funded with either a third party’s assets or the beneficiary’s.
Regardless of which trust you choose, it’s imperative that the creation, funding, and administration of the trust be done carefully. Hiring an experienced estate plan attorney is the best way to ensure the trust is effective.
Speak with the Lawyers at Batson Nolan PLC
At Batson Nolan PLC, we understand the unique challenges and considerations that come with estate planning for parents of special needs adult children. We take our time getting to understand your family and your goals so we can create a personalized plan that works for you. Since 1860, our attorneys have been providing legal counsel to families in Tennessee and Kentucky. We prioritize collaboration and efficiency to bring you the best legal services possible.