Special People, Special Plans
The expenses of caring for a family member with special needs can be overwhelming. Specialized equipment and skilled professional assistance may be required for many of life’s otherwise
routine tasks. Ongoing and expensive medical care is common, often without private health insurance to cover the bills. While assistance may be available from state and federal
governments, such assistance is subject to strict financial eligibility requirements.
Planning Challenges
Given these unique challenges, the estate plans of parents (and grandparents) must be carefully tailored and monitored to meet objectives beyond probate
avoidance and estate tax minimization. Although the challenges differ in each case, there is one fundamental objective common to all: Assure adequate care throughout the lifetime of the
family member, without disqualifying them from government assistance.
Do No Harm
In medicine, the first rule is to do no harm. So it is with planning for the requirements of a family member with special needs. Parents and grandparents should
be discouraged from establishing custodial accounts for a minor child with special needs. Why? Once such a minor child reaches the age of majority under state law, the custodial
account is distributed to the now adult child (or to their lawfully appointed guardian/conservator on their behalf). This distribution may disqualify them from government assistance.
Similarly, if parents (and grandparents) leave assets directly to or for the benefit of the family member with special needs, whether outright or in a plain-vanilla
trust, then the same disqualification may result. When assets exceed established financial resource limits, the individual may be disqualified from both Supplemental Security Income (SSI)
and Medicaid until the disqualifying funds are depleted.
Supplement, Don’t Supplant
Even if an adult with special needs qualifies for SSI and Medicaid, the benefits provided are limited. With most, if not all of the SSI benefit used for food
and shelter, little if any financial resources are left for life’s extras. For example, Medicaid covers medical care and prescription drugs, but not dental work. The goal, then, is to
provide for those extras without disqualifying for government assistance.
Moral Obligation Planning
Avoid the temptation of relying on moral obligation estate planning to provide for a special needs family member. For example, some parents leave an
inheritance to another relative, with the understanding that it is to be used to supplement the needs of the family member with special needs.
Problem #1: The selected relative may lack the morals to honor the obligation.
Problem #2: The selected relative could lose the inheritance through their own divorce, lawsuit or bankruptcy.
Problem #3: If the selected relative dies, then the inheritance is part of their own estate and subject to its terms.
Payback Trusts
As part of the Omnibus Budget Reconciliation Act (OBRA) of 1993, a trust containing certain statutorily required provisions may be established to administer and
distribute trust assets for a beneficiary with special needs without disqualifying them from government benefits.
These special provisions require the trust to payback the government for benefits provided to the (special needs) trust beneficiary after his or her death.
If trust assets are depleted or are otherwise insufficient to fully repay the government, no further reimbursement is required. However, if trust assets remain after the payback, the
remaining assets may be distributed to additional beneficiaries designated under the trust.
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