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Planning for Your Child's Future

Overview

When parents have a child with disabilities, one of the most important questions they ask themselves is, "What is going to happen to my child when I am no longer here?" A parent has the right to be concerned given the fact that how they leave their assets after death can greatly affect the quality of life for their child.

Many parents may be under the false assumption that it is not necessary to create an estate plan because their assets are so minimal. The truth is, often times we may have more in assets than we realize and that some may only be important after death. An example of this would be life insurance, a large cash asset available only upon the death of a parent. Therefore, regardless of your financial position, estate planning can be critical to your child's future.

A key part of estate planning for your child's future is writing a will. The object of the will is to ensure that your assets are disseminated to the appropriate people. If at death you have no will, your property will be dispersed according to the law in your state.

Writing a will is often as easy as putting your wishes on paper. However, when you have a special needs child, it is unwise to do so without the assistance of an attorney. If you do not have an attorney to assist you, you can call your local bar association for a reference.

A will does not, however, govern all assets. Life insurance and employer death benefits are paid to the beneficiary regardless of what the will says. This issue will become of importance should you decide to set up a Special Needs Trust (to be discussed in part two of this three part series).

The last thing to consider is how to ensure that your child is being taken care of, in a manner that is acceptable to you, after your death. This can be accomplished by creating a Letter of Intent (to be discussed in part three).

 

The Planning Process

There are several important issues to consider when developing a plan for your child. Following are a list of ideas that can assist you in making the appropriate decisions for your special needs child:

1. Assess the prognosis of your child's development. Consider whether or not your child will be able to earn a living or manage assets. If you are unsure, take the conservative approach. An important thing to remember is that you can change your estate plan as you understand more about your child's potential.

2. Take an inventory of your financial affairs. Come up with an estimation of the size of your estate (what you own).

3. Consider the living arrangements of your special needs child after your death. This will have a tremendous impact on how your estate should be distributed. If you believe that your child will need a guardian or conservator, you should recommend someone in your will.

4. Understand what government benefits your child will need and be eligible for. There are three different categories of benefits that you should be aware of. There are benefits that are not affected by financial resources, such as social security disability insurance. Next, there are benefits such as supplemental security income and Medicaid that have financial eligibility requirements. If your child is eligible for these benefits because he or she has minimal assets, an inheritance can make them ineligible. In this case, you would want to arrange your estate so that there will be minimal loss of these benefits. Last, there are government programs that are based on the person's ability to pay.

 

Developing a Will

Once you have considered the items discussed above, you can now decide how you will meet your child's needs. There are four items to review when establishing your will:

First, you can disinherit your child. By this, you would disinherit your child by name, allowing him or her to rely on state and federal support. This may be necessary if your assets are minimal, your child's needs are great, and you have other children.

Second, you can leave your special needs child a gift. In this case, you state in your will that you are leaving a portion of your estate to your child. This may be a good idea if your child is not receiving government benefits and is not expected to in the future. If, however, your child has a cognitive disability, then this method is not feasible. In this case, you can leave a gift for your child in the form of a trust.

Third, if you have other children, you can leave a morally obligated gift to one of them. In this case, you are leaving everything to a sibling, however, you explain that you want him or her to spend a portion of the assets on the special needs child. In this situation, the special needs child will not lose government benefits. The danger with this method is that legally, the nondisabled child can ignore the parent's wishes and do what they like with the money. If the nondisabled child experiences financial difficulties in his or her own life, he or she may not be able to provide for the special needs child. Or, if the nondisabled child is married and then later gets divorced, half of the inheritance may be lost in a settlement. This type of gift, therefore, may be useful when the parents have a modest amount of money and are just looking for the nondisabled child to assist their sibling with special needs.

Fourth, you can establish a trust, which in many cases, is the most effective way to help your special needs child. The purpose of a trust is to keep assets in a form that will be available to your child and will not disqualify him or her from government benefits.

 

The Special Needs Trust

When you have a child with special needs, the only way to ensure that your child receives an inheritance without jeopardizing government benefits, is to develop a special needs trust. In this case, the parents leave resources to the trust. The trust is then managed by a trustee on behalf of the child.

Government agencies recognize special needs trusts, however, they have imposed very stringent rules and regulations upon them. Because of this, it is critical that you consult with an experienced attorney should you choose this option.

If you've already had some experience with government benefits, you may have heard that the government doesn't allow a person with disabilities to have a trust. This is true, however, the special needs trust doesn't actually belong to the person with the disability. The trust is established and administered by someone else. The person with the disability is named as the beneficiary of the trust.

The following guidelines should be followed so that the trust explicitly shows that it:

When you speak with an experienced attorney, most likely they will want to prepare an Intervivos Special Needs Trust. The term "intervivos" is used because this type of trust functions while the parents are still living. Parents do not need to wait until their child reaches 18 years to establish this type of trust. It can be set up now, as a checking account at a local bank. Parents can put funds into the account every month and use these funds to cover the supplementary expenses as well as to save for the future. Choosing to do this now is a good idea because it is a great way to keep good records of your child's tax-deductible expenses.

An Intervivos (also known as Living Special Needs Trust) has other unique features, such as:

Once you have worked out the basic details of the trust, you must then consider whether it should be revocable or irrevocable. With a revocable trust, you have the right to add and subtract assets as you go along. Should you choose this, you may face a major consequence; the government considers the trust to be part of your estate. Therefore, when you die, everything in the trust is included in your estate and is subject to taxes and potential law suits.

If you choose to make your trust irrevocable, the assets you place in the trust will remain there for the benefit of the person with the disability. The only major disadvantage to this method is that you cannot remove the assets for your own care; it is solely for the person with the disability. With this option, however, neither the government or creditors can touch the assets in this trust. It has its own tax number and is considered a separate entity from your estate.

Once the family has the above worked out, they should then choose future or successor trustees to manage the resources when the parents pass away or are put in a nursing home. Families may even nominate a group of people to serve as joint trustees. It is also important to list an advocacy or disability organization as the last successor in the event the human successors are unable to serve. They may take on the responsibility or recommend someone in their group that will.

When deciding on how to fund the trust, you may need the assistance of a financial planner. The primary function of the planner will be to see what resources are available and then reallocate them, so that the future funding of the trust will be realistic. The planner will do a financial analysis on future supplementary items and will then look at the resources available to fund the trust now and in the future. Resources can come from the following:

With proper legal and financial planning, the family can guarantee that the person with the disability will enjoy a comfortable lifestyle after the parents are gone.

 

A Letter of Intent

a Letter of Intent is a document written by the parents or guardians of a child with special needs that describes the child's medical history, the child's current situation, and what you hope for the child's future. This letter should be started as soon as possible and updated as your child grows. The Letter is then ready at any moment should you become ill, disabled, or you pass away.

A Letter of Intent serves many purposes:

Thus, the Letter of Intent is a crucial part of any life or estate plan because it speaks for the family and, most important, the child with the disability.

The Letter is something you should not procrastinate writing. Sometimes we may feel that the odds of something happening to us are slim. But think about it; if you are the primary caretaker of your child with special needs, would your spouse really know how to do everything? Would your spouse know of where, when and by whom your child receives therapies? Does your spouse know when it is time for the next appointment to your child's specialists? Probably not. Therefore, not only is the Letter an excellent document for people not currently caring for your child, but also for the parent who isn't as involved as you are.

Preparing the Letter is often a very emotional experience for parents. You will rehash painful memories as you describe your child's past, and you will create new feelings of sadness as you think about the possibility of no longer being able to care for your child. This process is not an easy one and may take quite awhile to complete. However, don't let that deter you. It may take several months to complete, which is perfectly reasonable. Once the Letter is completed, you should have it witnessed and notarized. In addition, it should be formally updated about every six months.

When creating your Letter, do not worry about the format of the Letter; it is not a binding, legal document. It is simply written to provide guidance. Begin your Letter by writing "To Whom It May Concern." In the first paragraph, list the names, addresses, and telephone numbers of the people who should be contacted if anything should happen to you.

The Letter should then go on to discuss seven major areas:

1. Residence: If something should happen to you, where will your child live?

2. Education: Give a perspective of your child's capabilities. List any special education issues you would like to ensure are addressed. Describe the type of education you would like for your child as he or she grows.

3. Employment: Describe what your child enjoys and consider his or her goals, aspirations, limitations, etc. Discuss how you and your child feel about being employed as a disabled adult.

4. Medical Care: List all of your child's present and past physicians, the types of medical care your child should continue to receive, current medicines, therapies your child is receiving, and anything else that pertains to caring for your child in this aspect. It is also a good idea to refer to a set of medical records in this section (parents should always have a current set of medical records on their child including hospitalizations and letters from specialists).

5. Social: List all of the activities your child enjoys doing. Discuss where your child likes to be taken, the types of toys your child likes to play with, and the type of social relationship you have with your child.

6. Religious: List the church or synagogue you prefer for your child if applicable.

7. Behavior Management: Describe the approach that works best for your child. Explain how you discipline your child and how you wish for others to do so.

The Letter of Intent, as you can see, is a very important document. It ensures that the caretaker of your child, upon your death, is knowledgeable of your child's entire history and is, therefore, able to care for your child according to your wishes.

Reference: NICHCY News Digest, Vol. 2, Number 1, 1992

 

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