Planning for Children with Special Needs
Every parent can probably remember being asked when they were expecting, “Are you hoping for a boy or a girl?” The quick answer, of course, is that you are hoping for a child that is healthy. Raising and caring for a child with special needs can be extremely rewarding, but it can also present greater parenting challenges on every front. The need for medical care may be significant and the need for social and emotional support even more intense; and these needs can extend well beyond age eighteen. For parents of these children, the greatest concern may not be how to care for them today, but “Who will care for our child when we’re gone?”
To help address these issues, parents of children with special needs have a unique set of tasks that touch on a variety of subjects ranging from health care and financial planning to guardianship and maximizing government benefits. Given the complexity and importance of these issues, it is critical that an attorney experienced with special needs planning is engaged. He or she will be best qualified to lead you through the planning process for your family as well as your special needs child. The decision about how to allocate resources among multiple children when only one has special needs can be especially challenging for parents. Determining “What is fair?” is a complex task that demands the help of an attorney and experienced financial planner.
One of the most important issues to consider is whether to establish a special needs trust. This type of trust holds assets earmarked for the disabled individual with the primary goal of improving his or her quality of life while not jeopardizing the ability to qualify for public assistance benefits like Medicaid or Supplemental Security Income (SSI). Without a carefully drafted trust, a disabled person who owns more than $2,000 of assets can be disqualified from receiving government benefits. Even with the use of a trust, it is important to become very familiar with the rules on how they should be drafted, funded and administered. For example, the typical “Crummey” provision included in trusts, which allows gifts made in a specific manner to qualify for the annual exclusion from gift and estate tax, would be inappropriate in this application. Assets of a disabled individual — even those owned in trust — must, at their death, reimburse the government for Medicaid payments made during their life. Trusts funded with assets owned by others and never owned by the disabled individual, known as “third-party” trusts, have no such requirement.
The rules for distributions from special needs trusts are similarly complex. Third-party trusts can pay for virtually anything to enhance the life of the beneficiary. First-party trusts, where the assets are owned by the disabled individual, are extremely restrictive. For example, no distributions can be made for food or housing without a reduction or total loss of Medicaid and SSI benefits. Consultation with an attorney can help to navigate the landscape so that no costly mistakes are made.
“Making the decision to have a child – it is momentous. It is to decide forever to have your heart go walking around outside your body.”¹ This quote is especially poignant for parents of children with special needs who require unique planning considerations. Enlisting the proper support team as partners in this process may help ensure that the child lives a full life and maximizes their potential even when Mom and Dad are no longer around.
¹ Elizabeth Stone
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