If you've recently created your estate plan, or you created it a while ago and you have a child with special needs, did you make sure to create a special needs trust for your child?
I've dealt with families with children with special needs for years who've had varying degrees of involvement with the government. When you have a child with special needs, if they are receiving government benefits, the purpose of your special needs trust is to protect those benefits after you're gone. If you simply allow your child to inherit from you directly, you may cost them the government benefits. The government will treat those assets as theirs and say they no longer need those government benefits. And with you not around to take care of them, they could find themselves in a really bad situation.
Types of Special Needs Trusts
There are three types of special needs trusts.
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First-party special needs trusts: This is funded using your child’s own assets and upon the death of your child, the government is able to take whatever’s left under a concept known as estate recovery.
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Third-party special needs trusts: This is funded by someone other than the special needs child and there is no governmental reimbursement or estate recovery when your child dies.
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Pooled Trusts: This type of trust holds funds from many different people with special needs. It is often set up by a charity to allow multiple people to put their resources together and when they die, a portion goes to the government and a portion goes to the charity.
"Hacks" to Avoid
The problem we run into is many people have tried to "hack" their estate plan and instead of doing a whole trust, they disinherit their child or give it to another child and in the hopes that they'll be able to manage the estate for their sibling. Both of those may seem like an easier way to plan, however, you're leaving significant risk. First of all, if you disinherit the child, it's a callous way to approach things - the child that probably needs it the most doesn't get any kind of an inheritance.
If you give what would have been the child's share to another sibling in the hopes that they will take care of their brother or sister, what happens if that sibling dies first? Who is there to take care of your child with special needs? That money you may have given to your other child may have gone to their children already and there's no money left for your child with special needs.
Next Steps
The best way to protect your legacy when it comes to your children with special needs is to make sure to work with professionals, your financial advisor, your accountant, a care manager for your children. Make sure that you have a plan in place that has their government benefits protected so that you don't have to worry about that legacy when you're gone. So if you don't have a special needs trust set up for your child, we can set up a Legal Strategy Session to discuss the best options for you and your family.
