Everyone needs an estate plan. However, a lack of planning can be catastrophic for children with special needs and for older adults.
One day will come when you are no longer able to care for your special needs child due to death or disability. You want to ensure that your child, either as a minor or as an adult, is set up for success.
When it comes to estate planning, in most cases, parents cannot leave their estate to their child with special needs through a regular will. Some reasons could be the child lacks the ability to manage money and/or the inheritance would disqualify their child from receiving crucial government benefits. Leaving money to other siblings with the understanding that they care for their sibling with special needs isn’t the best option either. Even if the able sibling is willing to take on this responsibility that money is at risk if that able sibling were to pass, be sued, get divorced, fall on hard times, the list goes on and on.
This scenario can also play out as we age. If a spouse were to have a stroke, develop dementia, or otherwise become impaired and need services inside the home or in a nursing facility, the well-spouse needs a plan on how to pass money for the disabled spouse’s benefit without kicking them off any public benefits they are receiving such as TennCare (Tennessee’s Medicaid).
One of the best options is setting up a Special Needs Trust.
There are several types of Special Needs Trusts (SNTs), all designed to benefit someone with a disability. This article focuses on third-party SNTs, meaning the property going into the SNT currently belongs to someone other than the beneficiary.
People with long-term disabilities and special needs often have conditions in which healthcare is of utmost importance. However, their disability may prevent them from ever holding a job that offers health insurance or a living wage. Public benefits such as TennCare and SSI (Supplemental Security Income) are life savers. These programs are only available to those who are below a certain income threshold. And often, getting qualified for these programs is a long, difficult process.
When these public benefit recipients are left an inheritance or receive a settlement, it can be problematic. This is because often the inheritance or settlement isn’t enough to pay for the recipient’s needs but is enough to get the recipient kicked off these crucial programs.
A Third-Party Special Needs Trust allows a recipient to remain on these public programs while keeping the newfound money because the money technically doesn’t belong to the recipient, but rather to the trust.
You may ask “Why don’t recipients of public benefits simply refuse this new income.” Unfortunately, even if a TennCare recipient disclaims money from an inheritance or settlement, TennCare views this as the recipient gifting money, even if the recipient never received the money, which would result in a penalty period where the recipient is disqualified from TennCare.
So, you can see the dilemma. To best protect the government benefits for which an individual with disabilities may be eligible, it is important to discuss which type of SNT should be used in a specific situation with an attorney who is proficient in special needs planning.
In all estate planning, you should seek a specialist. The type of planning needed for a young healthy couple is different that the type of planning needed for an older couple, a person with a new diagnosis or a person with a special needs child. Estate planning is fluid and must change as your life circumstances change.
Chris Johnson is an attorney and partner at Takacs McGinnis Elder Care Law.