By Ronald A. Fatoullah, Esq. and Eva Schwechter, J.D.

Estate Planning for Parents of Special Needs Children by Ronald A. Fatoullah & Eva Schwechter

{4:34 minutes to read} For most parents of children with special needs, government benefits like Medicaid and Supplemental Security Income (“SSI”) are an invaluable resource. These programs help to cover some of the care necessary for their child’s health and well-being. These benefits are contingent on a number of eligibility rules with which the applicant/recipient must comply. Many parents are familiar with the basic concepts of these rules, such as the need to keep the child’s assets under a specific resource limit, to refrain from giving the child money outright, and the importance of establishing a supplemental needs trust to protect their child’s assets. However, many parents are not aware of the potential impact their personal estate plan may have on their child’s benefits. It is important to take into account your child’s unique circumstances when preparing your own estate plan.

The most important thing for parents to keep in mind is the absolute necessity for them to create their own estate plan. There are a number of reasons parents may be hesitant to create an estate plan. However, parents of children with special needs place their child’s benefits at risk if they fail to create a sound estate plan. In general, when a parent passes away without a will (known as dying “intestate”), his or her assets will be distributed according to state law. These laws generally result in a portion of the estate being left to their children. In the case of a child with special needs, receiving these funds can put him or her over the resource limit for many government benefits, rendering them ineligible for the benefits they rely on.

Parents must also keep in mind that the principle of not gifting money outright to a child with special needs applies once the parent has passed away, as well. Except in very limited circumstances, parents should not leave anything outright to their child with special needs. Instead, a parent’s estate should flow through his or her will or trust into a special needs trust for the child’s benefit. A properly drafted special needs trust will protect the child’s benefits and allow the estate to be utilized as intended. Parents will also have the opportunity in their wills or trusts to choose a guardian for their minor child, an important decision most would not want to leave up to state law.

Sometimes parents with multiple children will leave their entire estate to their children without special needs, in the hope that those children will take care of their sibling with special needs. While this avoids the issue of gifting outright to a child with special needs, it often leads to bitter family disputes and should be avoided if possible. Typically, the better option would be to leave money outright to the rest of the family and establish a special needs trust to hold the share of the estate that was intended for the child with special needs. This allows the parent to distribute the estate as he/she sees fit and takes the burden off of the other children to appropriately divide the estate and properly maintain money to care for their sibling.

When discussing estate planning, it is important to also consider planning instruments such as life insurance policies and retirement plans. When beneficiaries are properly designated for life insurance policies and retirement plans, these assets are not distributed according to the terms of one’s will. However, if beneficiaries have not been selected, then there is a possibility that these assets will be distributed according to state law, including shares potentially being given outright to a disabled child. As with other planning tools, a child’s share of these important assets can be placed into a properly configured special needs trust. However, it is important to note that there are complicated tax issues which may need to be addressed before placing these assets into a trust.

Parents must also remember that their own personal estate plan is not the only potential issue. It is advisable to check with any relatives who may be leaving an inheritance to their children and make sure that they also speak with a qualified attorney before including a child with special needs in their estate plan.

To create an estate plan, or to ensure that your current plan is appropriate for your child with special needs, you should contact an experienced estate planning attorney who focuses on planning for individuals with special needs.

Ronald A. Fatoullah, Esq. is the principal of Ronald Fatoullah & Associates, a law firm that concentrates in elder law, estate planning, Medicaid planning, guardianships, estate administration, trusts, wills, and real estate. Eva Schwechter is an associate with the firm. The law firm can be reached at 718-261-1700, 516-466-4422, or toll-free at 1-877-ELDER-LAW or 1-877-ESTATES. Mr. Fatoullah is also a partner with Advice Period, a wealth management firm, and he can be reached at 424-256-7273.

Ron FatoullahRonald A. Fatoullah, Esq.
Managing Attorney/Founder
1-877-ELDER-LAW • 1-877-ESTATES