Since 1993, it has been public policy in New York State to allow the parents (or other relatives) of a disabled child to establish a trust for their estate that does not disqualify them from government benefits, such as Social Security and Medicaid. The reasoning behind these Supplemental Needs Trusts is simple: Before the protection these trusts now provide, parents would simply disinherit their disabled children rather than watch them lose their benefits. Since the state wasn’t getting the money from the estate anyway, why not allow the disabled child to leave for his or her additional needs, beyond what the state provides, such as sundries, clothing, meals, vacations? , additional costs? -over-the-counter medications, updated medical procedures, reading material, recreation, improved housing, etc.
These trusts, however, offer traps for the unwary. Since payments to the child will generally reduce your SSI payments dollar for dollar, trustees of such trusts should be encouraged to make payments directly to providers of goods and services. Preserving SSI benefits is crucial since SSI eligibility determines Medicaid eligibility. In other words, if SSI is lost, the beneficiary also loses their Medicaid benefits. Also, any benefits previously paid by Medicaid can be recovered. As such, legacies from well-intentioned grandparents must also be considered.
Distributions from the trust to the beneficiary must be “in kind” and not in cash. For example, the trust may own items such as furniture and allow the child beneficiary to use it. In addition, the supplemental needs trust must be carefully drafted so that it only allows payments for any benefit that exceeds what the government provides, not only now but also in the future. The child cannot control or have direct access to any part of the trust.
A major issue for parents today is increasing the life expectancy of their disabled child. With the great advances in medical care, many disabled children, who in earlier days would have predeceased their parents, now outlive them. To resolve this problem, parents often make the planning error of leaving a disproportionate share of the estate to the disabled child. This can breed resentment among siblings who, while initially agreeing to such an arrangement, may later find themselves in need of funds and resent the unequal distribution in favor of the disabled child. Surviving siblings are often the only support network available to a child with special needs, so maintaining peace and harmony in the family is most important.
Often, a discussion with the estate planning attorney will reveal that the proceeds from an equitable division of the estate will, in fact, be sufficient to meet the needs of the disabled child. If that is not the case, “second to die” insurance can be purchased to provide the additional funds needed. Policies are written on two lives, those of both parents. Since the insurance company only has to pay when the second parent dies (that is, when the funds are needed), the premiums are significantly lower than on an individual life policy.
Some parents, feeling that the family is close enough, think that they can simply leave the inheritance to a brother or sister who will then take care of the disabled sibling. This does not offer protection to the disabled child in the event that the sibling has financial difficulties, gets divorced, or predeceases the disabled child. The Supplemental Needs Trust allows the sibling, as trustee, to manage the assets for the benefit of the disabled child while providing full protection for the funds and the appointment of backup trustees to continue the trust in the event of the child’s death or disability. the initial trustee. Remember, these trusts may have to last for many years.
With the complexity of modern trust administration, many parents are choosing both a personal and a professional trustee, so that the family member can provide personal input while the professional trustee handles the administrative elements, such as control of trusts. investments and preparation of tax returns.
It’s also a good idea to review beneficiary designations on IRAs and 401(k)s, as well as on annuities and insurance policies so that the disabled child’s supplemental needs trust is named as the beneficiary rather than the child himself. Be careful with simple designations like “my spouse first and my children second.”
Another key issue is the continuity of care for the child after the death of the surviving parent. Revocable living trusts are often used as the estate plan of choice, since the trustee can use and distribute assets for the benefit of the disabled child immediately after the death of the parents, unlike in the case of a will, which first must be legalized, a judicial procedure to determine its validity. These procedures can tie up estate assets for many months or even years in some cases.
Not to be overlooked in planning for the disabled child is the “Letter of Intent” or Personal Needs Notebook, where the parents provide the following information to the trustees
(1) the nature of the child’s disability
(2) emotional and financial care provided by the family
(3) people involved with the child
(4) the abilities and limitations of the child
(5) your likes and dislikes
(6) their peculiarities and nuances of behavior
(7) your daily routine, and
(8) how they act with other people and in other places when the parents are not present.
One last word of caution. When dealing with a disabled child, it is of the utmost importance that funds are available when needed. As such, the parent’s long-term care insurance should be arranged so that the money the family relies on to support the disabled child is not lost to the parents’ potential nursing home expenses.