- Covering the Bases for Children with Special Needs
- February 3, 2014 | Author: Thomas D. Begley
- Law Firm: Capehart & Scatchard, P.A. - Mount Laurel Office
Planning for children with special needs is a complicated undertaking. In addition to ensuring that an inheritance with minimal exposure is left to these children, and overcoming the customary obstacles of death taxes and unnecessary probate costs, parents have to guarantee that personal and financial objectives are met as well. In order to do so, proper planning must be pursued by covering four bases:
establishing the proper trust,
setting forth the proper protective arrangement to address personal, financial and medical needs,
ensuring that there are assets to fund the estate plan for these children, and
setting forth a system which respects the individual dignity of each child.
Not every child with disabilities requires a trust. Not every child who does require a trust requires a special needs trust. In all four aspects of proper planning, one common theme must be respected: each child is an individual. One must avoid the temptation to provide and accept rubber stamp answers. Children with disabilities have their individual strengths and limitations. A child with mild autism cannot be treated in the same manner as a child with a severe level of Down’s syndrome.
Establishing the Proper Trust
A trust is not required if a parent feels that his or her child can handle his or her own assets. For example, children with physical disabilities, but no mental impairments, would fall into this category, especially if they do not require needs-based government benefits, such as Supplemental Security Income (SSI) or Medicaid. Unfortunately, this situation is the exception rather than the rule.
Most children with special needs do require a trust. They typically do not have the mental capacity to handle finances. Moreover, they are often exploited by others. Thus, they require the benefit of protection which a trust affords.
There are two types of trusts. The primary trust is a special needs trust, which ensures that its beneficiary will have a fund available to him or her while continuing to preserve his or her eligibility for needs-based government benefits, such as SSI and Medicaid. The trust must meet certain criteria to be valid. It must be irrevocable upon the first of two events: the death of the grantor(s) or the funding of the trust. The trust must clearly state that the assets therein are a supplement, rather than a replacement for government benefits. It must not utilize language that asserts that the funds may be used for “health,”“support,” and “maintenance.” The trust must bestow upon the trustee absolute discretion. Overall, the terms of a special needs trust are very firm regarding the manner in which distributions are to be made. Yet, the proper establishment and management of this vehicle can truly enhance the quality of life of its beneficiary.
The second type of trust is a support trust. A support trust will not preserve any needs-based benefits. It does, however, allow for greater latitude in the expenditures which may be made. A support trust specifically may allow for distributions for health, support and maintenance. This type of trust is to be used with caution. A special needs trust should be established if a child has significant disabilities and a limited amount of resources. However, if the child has a high degree of functioning, and there are substantial assets, a support trust should be established. With a support trust, the loss of government benefits can be offset by the trust principal and income, which can be used to pay for private health insurance as well as the other wants and needs of the child.
The Right Protective Arrangement
When any child turns 18, whether or not the child is disabled, he or she is emancipated, and the role of the parents as natural guardians is extinguished. Without question, many children with special needs require continued oversight of their personal, medical, and financial affairs. For many parents, the answer is to establish a guardianship. A guardianship is court-imposed surrogate decision making. It allows one party (one or both parents) to make decisions on behalf of another (the child). In establishing a guardianship, a child is declared mentally incapacitated. Under a plenary guardianship, the child has little, if any, right to make any decisions.
At times, a plenary guardianship is unnecessary. There are two other alternatives. One is a limited guardianship, which allows a guardian to make many major decisions, yet preserves the right of the child to make any decision which he or she is able to undertake. Another alternative is to forego the establishment of a guardianship, and instead arrange to have the child execute an advance directive (i.e. a living will and health care power of attorney) as well as a general durable power of attorney to handle personal and financial matters. In order to do so, the child must be able to understand the nature of the documents which he or she executes. Moreover, the parents need to be aware of a principal difference between a guardianship and estate planning documents - namely, that the authority of the parents can be overridden by the wishes of the child who executes estate planning documents.
Funding the Estate Plan
In addition to providing for a child with special needs through a bequest in a will or a trust, the estate plan must be funded. Many parents do not properly develop a meaningful financial strategy. They want the best for their children, but often they do not have enough assets or they fail to budget properly.
Parents must ascertain how much should be left on behalf of their children. In doing so, they need to create a budget that reflects both present and future needs. Although it is appropriate to hope that needs-based government benefits will be available, one should be cautioned against expecting them to last forever, as government programs can and have changed to curtail benefits.
In short, parents must make sure that the financial needs of their children are met. In doing so, they need to make two decisions. First, it may be necessary to override a desire to treat all of one’s children equally because of the practical issue of providing for a disabled child. Second, it is often prudent to purchase life insurance in order to meet the needs of a disabled child.
Protecting Each Child’s Individuality
Finally, extensive legal and financial planning makes little sense unless we evaluate and respect the individuality of each child. Disabled children, just like any others, have their strengths and limitations, likes and dislikes, favorite activities, preferences, and routines. Parents of children with special needs must prepare a comprehensive letter or set of instructions for those who will eventually care for the child. The child’s life will never be the same after the death of his or her parents. However, his or her individuality can be maintained if proper communication is maintained between the child’s parents and the team of people (i.e. family, friends, social service agencies, and financial advisors) who are entrusted to carry out the oversight of the child’s life.
In all, planning for a child with special needs involves much thought. Many areas need to be addressed to ensure the well-being of disabled children after their parents have died. In order to do so, it is necessary to make sure that all the bases are covered.