Estate Planning for Beneficiaries with “Special Needs”

Families of children with special needs often consult an estate planner like myself after larger questions have been resolved. If the disability results from some kind of accident, where a trust may be needed to administer the proceeds of a settlement, it is not unusual for the settlement lawyers to prepare a suitable trust during the litigation to obtain the settlement. That presents its own set of challenges and is more typically the province of a good special needs litigator.

More commonplace are situations in which beneficiaries have special needs relating to disabilities occurring in the natural course. The concern is not so much any settlement of proceeds or “self-settled funds,” but rather how to ensure care for these individuals after their natural caregivers, typically the parents, are no longer able to provide direct care.

Setting aside the question of how they get funds, which is typically the province of a financial planner and possibly an insurance advisor, whatever funds the parents may have for the ongoing care needs to be addressed in such a way as to provide maximum benefit to the beneficiary. This is where an estate planner, who has knowledge of special needs drafting, can be most effective.

In a typical case, parents of a child with special needs will have become experts of advocacy for their child. However, once the child reaches majority (typically, age 18 or 21), the need for advocacy doesn’t end. There are a variety of different kinds of programs that are available for people with special needs; the chief feature of which is that they tend to be means-tested, meaning that a recipient of these programs need not only qualify in terms of their disability with special needs, but must also be below particular income/wealth thresholds.

Why is this relevant to estate planning? Because one unfortunate outcome from lack of planning may be that the special needs person who inherits from a parent or other relative can see those funds reclaimed or “clawed back” by whatever programs/services have been providing the benefits. This, in most cases, would be an avoidable disaster.

The good news is that with proper planning, an inheritance can be sheltered from the reach of these benefits programs. In the best case, government programs will continue to provide funds for direct care for basic needs while the inherited legacy can continue to provide for additional or “supplemental” needs. This is why a “special needs” trust is sometimes called a “supplemental needs” trust.

Every person with special needs is unique (as is his/her financial situation). Accordingly, it is critical to consult with a financial planner and an estate planning attorney who are versed in this area of planning. Contact us today with questions or comments.