Here is guest article by Lori Wolf and Mary Browning of the law firm Cole Schotz exploring the special considerations involved in estate planning where a child has special needs.

Here is guest article by Lori Wolf and Mary Browning of the law firm Cole Schotz exploring the special considerations involved in estate planning where a child has special needs.

Estate planning is an important aspect of a family plan for any parent and takes on even greater significance for the parent of a child with special needs. Wills are often the primary component of an estate plan. They allocate assets to designated beneficiaries, create trusts which establish the time at which beneficiaries receive the assets, and designate individuals to serve as executors of the estate and trustees of the trusts created in the will.  There are special considerations in drafting the will for the parent of a child with special needs.

Guardianship decisions

Whenever there are minor children, the parents designate guardians in their wills.  The selection of a guardian is a decision that any parent, but especially the parent of a child with special needs, must carefully consider.  The guardian must be capable of addressing the needs of the child.  The guardian must have sensitivity and patience.

A letter of intent can be used to provide the guardian with the critical information needed to provide for the child’s care. A letter of intent sets forth the medications and therapies that have been successful (and unsuccessful) in the care of a child, important routines, the child’s strengths and weaknesses, the parents' hopes and dreams for the child and other issues of concern.  Although a letter of intent is not a legal document, it is an important component of a legal plan and should be updated on an annual basis to reflect changes in the child’s life. 

Preservation of right to benefits

In addition to addressing decisions on guardianship, the will is an important tool to ensure that a child with special needs remains eligible to receive government assistance such as Social Security Income (“SSI”) and Medicaid.

Prior to age 18, assets in a parent’s name affect a child’s eligibility to receive government assistance.  As a result, limited, if any, government programs are available to most children with special needs before they reach age 18.  Once a child attains the age of 18, the child’s eligibility to receive government assistance is based on his or her individual resources and income.

A child cannot have assets in excess of $2,000.00 in value or the child will not be eligible to receive Medicaid or SSI.  If parents pass away leaving assets to the child either outright or in a trust which does not qualify as a special needs trust, that child will lose eligibility for means-based government programs.  With a properly structured will, assets allocated to a special needs child can be held in a trust which does not affect the child’s eligibility for SSI, Medicaid and other benefit programs.

Use of special needs trust assets

This special needs trust can permit the trustee to utilize trust income and principal to supplement, but not replace, monies available from government assistance.  The assets are to be used for luxury items such as travel, books and other expenses that are not provided by for Medicaid or other government programs.

Special needs trust assets are not to be used to provide housing, food or clothing for the child.  The special needs trust can be used to create a pool of resources available to ensure that parents are able to preserve the lifestyle of the child with special needs over such child’s life, which may extend long after the parents’ deaths.  This eliminates dependency on other family members for the financial care of the child.

Timing of trust creation

A special needs trust can be established during a parent’s life or can be established under a parent’s will at death.  The advantage of using a trust established during lifetime is that the trust can also be the recipient of gifts and bequests from grandparents and other family members.

It is important that the parents of a child with special needs communicate with other family members to ensure that no assets are left directly to the child, thereby disqualifying the child from receiving government assistance.  These family members should be directed to change their wills so that any assets passing to the child with special needs passes to the special needs trust established for that child’s benefit. 

Allocation of assets

The parent of a child with special needs must carefully consider how to allocate his or her assets at death.  If there are neuro-typical children as well as children with special needs, parents will have to decide whether the division of assets among children should be equal or unequal. 

Factors to consider include the potential ability of each child to earn a living, the likely financial needs of each child and the assets available (including government benefits) for the care of each child.  If resources are limited, a parent can acquire life insurance to fund the special needs trust.

Permanent insurance is more applicable than a term policy since it will be critical to ensure that the insurance does not disappear or become prohibitively expensive when the parent reaches a certain age.

Trustee selection

Careful consideration must be given as to who to name as the trustee of a special needs trust.  The trustee should have three key characteristics:  (i) the individual should be someone who the parents trust; (ii) the individual should have financial savvy; and (iii) the individual should have values which closely resemble those of the parents since those values will apply in making decisions on the care of the child.

It is important that consideration be given to this role as this should be someone who is sensitive to the individual needs of the child.

Coordination of assets

It is important for parents of a child with special needs to coordinate all of their assets with the special needs trust.  Retirement plan assets, life insurance and annuities pass by beneficiary designation and will not automatically pass through the will to the special needs trust.

It is crucial that these assets are tied in with the special needs trust through an appropriately filed beneficiary designation form so that assets do not pass outright to the child with special needs thereby affecting the child’s eligibility for government benefits.

Planning issues for an 18-year-old child with special needs

As a child with special needs approaches age 18, other issues arise.  It is important to ensure that there are no assets in the name of the child if government assistance would otherwise be available.  If assets are in the child’s name, these assets can be spent on the child’s care before the child applies for government benefits.

Alternatively, the assets can be contributed to a pooled trust or a first party special needs trust.  It is preferable however for planning to begin upon the birth of the child or his or her later diagnosis of having special needs to ensure that no assets are ever accumulated in the name of the child. 

Decision-making after age 18

Another issue which must be addressed as a child approaches age 18 is whether the child has the ability to make his or her own financial and medical decisions.  If the answer to that question is yes, then the child should sign a power of attorney and healthcare proxy when the child reaches age 18 to permit parents to assist the child with financial and medical decisions as needed and requested without eliminating the child’s autonomy. 

If at age 18 it is clear that the child is unable to make independent financial and medical decisions, a guardianship proceeding should ensue.  This process can take three to six months to complete and is handled through the court. 

Doctors must provide affidavits attesting that the guardianship action is necessary as the child is unable to make decisions with respect to his or her own care and a court appointed attorney and thereafter a judge must concur that the guardianship is appropriate.

There can be a full guardianship where the child retains no autonomy and all decision-making rests with the guardians or there can be a limited guardianship through which certain rights are retained with the child with special needs (such as the right to vote, the right to marry and the right to have a bank account with some limited dollar amount) and the remaining decisions are made by the guardians.

It is easy to defer addressing estate planning, especially when life is filled with the day-to-day pressures of caring for a child with special needs, however this long term planning is critical.