Special Needs Planning

An old fashion approach to estate planning with a disabled child was to disinherit the child and leave the estate to the other child(ren) who would then “take care of” their sibling.

Time and experiences have exposed the pitfalls and dangers of such planning.  Even with the most trustworthy siblings and the best of intentions, the siblings cannot have full control over what the future brings.

Here’s a demonstration of how things can turn out very differently than intended:

Bernard has four children: Borris, Barry, Bob, and Barbara. Barbara has developmental disabilities and receives public benefits. Bernard recognizes that Barbara wouldn’t be able to manage her own inheritance so he prepares a will disinheriting Barbara, leaving everything to Borris, Barry, and Bob with informal instructions to his sons to take care of their sister Barbara for the rest of their lives. The boys love Barbara and have every intention of following their father’s instructions.

After Bernard’s death, his estate is distributed to Borris, Barry, and Bob in accordance with the will, who each put their inheritance funds in their personal bank accounts. The brothers take excellent care of their sister Barbara, paying for all her needs and even more. Everything is going well.

A few years later, Borris dies suddenly, and his estate is left to his wife. Borris’s wife does not feel the same obligation to use her money to care for her sister-in-law. Barry unfortunately gets divorced, and as he deposited the inherited money in a joint account, his ex-wife receives half of the inheritance, even though a substantial amount was informally earmarked for Barbara’s care. Due to the divorce, and unemployment, Barry has trouble paying his own bills and certainly can no longer provide for Barbara financially. Bob is the defendant in a major lawsuit and now has a judgment against him jeopardizing the money earmarked for Barbara.

Bernard and his sons all meant well, but circumstances beyond their control put Barbara’s continued financial security in jeopardy.

The safer and smarter alternative would have been to specifically provide for Barbara in a manner that the inheritance would be managed properly and available to her, regardless of what could happen to her brothers.

Questions about special needs planning? Read our FAQs.

The most straightforward and practical way for a parent to provide for a child with special needs would be the use of a supplemental needs trust in their planning. The child that has special needs would not receive an outright inheritance, but the parent could direct the child’s inheritance to be held by a trustee who would then administer that child’s inheritance according to terms that would allow the child to have uninterrupted government services and also have funds to be used for any of the child’s needs or wants that are not covered by the services he or she is receiving. The parent can designate a trustee to manage the trust, and successor trustees. If there is ever a time that the trustee can no longer serve (dies, becomes incapacitated, or any other reason), or the trustee experiences other personal life circumstances, the money would not be at risk, and someone else would be able to step in to continue managing the child’s inheritance.

There are many correct ways to set this up making the parent feel most comfortable and providing the parent, the child, and all the other children with peace of mind. But one definite wrong way is to do nothing at all.

While unpleasant to think about, avoiding this topic will be much more unpleasant to deal with in the long run. Parents are often the bedrock and support of children well into their adult years. The death of a parent irrespective of a child’s age can be painful and difficult. The death of a parent is often more traumatic to a person with special needs because of the deep reliance that the child may have on his parent as a caretaker.

It is so important for every parent to have an estate plan in place, but even more important for parents of special needs children (whether minor or adult children) to have their estate plans in order. If a proper plan was not in place during the parent’s lifetime, an inheritance to the child could jeopardize the child’s much needed government benefits. Without a plan in place, imagine the added trauma of having government benefits cut in addition to the loss of the parent.

Eligibility for government benefits most often have very strict income and asset requirements. During the parent’s lifetime, the child may have little or no money, allowing them to qualify for benefits. Under New York State law, without a will or other estate plan in place, a child will inherit from a deceased parent’s estate. This could result in a child having too much money to continue receiving much relied upon government benefits for health care, housing, social services, or long term care, but not enough money to independently support himself or herself or pay for needed services.

Most basically, a parent of a child with special needs who relies upon or may rely upon government benefits in the future, must ensure that the child’s inheritance is protected within a third party supplemental needs trust. The parent can establish a lifetime supplemental needs trust during his or her own lifetime, that can continue after the parent’s death during the child’s lifetime, or the parent can have language drafted in his or her will providing for the child’s share to be held in a supplemental needs trust that will enable the child to benefit from his or her inheritance without jeopardizing government benefits or the inheritance.

Sadly, without proper guidance, parents make the mistake of leaving the child’s share outright to his or her sibling with the expectation that the brother or sister will provide for their sibling, or worse, disinheriting the child with special needs altogether. Even with the best of intentions, a well meaning sibling may not be able to carry out mom or dad’s instructions. Divorce, bankruptcy, creditor issues, death, are just some ways that the money could disappear beyond the control of the family. Not to mention a situation that may test a sibling’s loyalty, such as the healthy sibling going through a hard financial time and a need to “borrow” the money earmarked for the disabled sibling.

It is also important for parents to name a guardian for their child with special needs, to ensure that the person who they find most appropriate will have the legal authority to manage legal and financial matters and health care decisions for the child. For a minor child, this can be addressed in the will. For an adult incapacitated child, this may require petitioning the appropriate court to have the court appoint the standby guardian after the parent can no longer serve as guardian for the child. It is best if this is addressed while the parent can still make these choices and manage the process.

It is important for every adult to have an estate plan, but the stakes are higher when there is a beneficiary with special needs. Parents of children with special needs certainly have extra responsibilities but having an estate plan in place is a responsibility that should not be ignored until it is too late.