Planning for a Disabled Child
Parents of a disabled child not only need to do their own estate planning-they also need to plan for the entire life of their child, including adulthood.
Such parents need comprehensive estate planning. The plan should provide for the child not only on the death of the parents, but if the parents become sick or incapacitated.
Exactly what type of planning and how much, depends upon the nature and severity of the disability, the parents' resources, and the family’s goals and objectives.
Although the parents can name someone to act for them if they become incapacitated, they cannot name someone to act on behalf of an incapacitated adult child without court involvement. However they can minimize court involvement by removing asset management and distribution decisions from the control of a guardian and the court through planning with a revocable trust and/or irrevocable trust. Documents should be in place indicating the parents' choice of guardian of a child, both at the parents' death, and in case of their disability.
Parents must assess the future non-financial needs of the child after the parents are gone. With whom or where will the child live? What housing options or assistance are available? What activities does the child enjoy?
Next, parents need to estimate the future financial needs of the child, taking into account projected government assistance.
The parents must create a financial plan for their future, as well as the child's. How will the parents create enough wealth, or preserve enough wealth, to reach the goals they have for themselves and their child? Should they leave a larger share for the disabled child than for the other children?
The parents must also consider what should be done to protect their estate from devastation during their lives. Are the parents in high-risk occupations or activities (neurosurgeon, landlord) which may indicate a need for additional insurance or asset-protection planning? Do they have enough medical, disability, and life insurance? Nursing home costs pose a threat to every estate. Most people should strongly consider long-term care insurance, which will seem expensive until the day one of the parents needs nursing home care (typically $40,000 to $50,000 per year in Maine). And of course, there are estate taxes on everything the parents own at death over the individual exemption amount of $675,000. Many may be caught off guard, as the taxable estate includes such overlooked items as the value of IRAs, life insurance death proceeds, and even collectibles in the house.
As part of their overall estate planning, parents can have a portion (or all) of their estate stay in a trust for the benefit of their disabled child after they die. This can have several benefits. First, if done as part of a revocable living trust, the assets bypass probate. Second, the assets will be managed by someone the parents choose, not by the guardian the court chooses, or by the child. Third, the parents can control what happens to the money when the child dies. Fourth, the parents can include guidance or legally binding directives about how the money is to be used for the child.
Fifth, and sometimes of most importance, the trust can be drafted so as to not disqualify the child from government assistance. This is called a Special Needs Trust. Since most government assistance requires the recipient to have very low income, very low assets, or both, an outright bequest to the child or a trust which gives the child too much right to demand money, will disqualify the child from government assistance until the child spends down the trust assets. Although the government is fairly hostile towards people planning with their own assets in order to qualify themselves for government assistance (e.g., Medicaid coverage for nursing homes), the government has shown no interest in erecting blockades against parents planning with their own money for disabled children.
Even small amounts in a Special Needs Trust can make a huge difference in the life of a disabled child. For example, while the child's basic needs could be met with government assistance, the trust could be used to provide "extras" like a television, a trip to visit the relatives in California (or tickets for relatives to visit the child), a special van, or a computer with voice-recognition technology.
As a final note, sometimes disabled children have their own funds which need protecting. The funds may have come from a lawsuit over the actions or negligence which resulted in the child's disability. If the lawsuit settlement is paid to the child or a guardian, the money will be considered fully available to the child and disqualify the child from government assistance.
In part because of this, often damages are negotiated to be paid in the form of a structured settlement, paid over the life of the child. One downside to this is inflexibility: if a child needs more in one year than the settlement calls for, the child must wait another year for funds. Receipt of funds each year may cause a reduction in, or disqualification from, government assistance, depending upon the circumstances.
However, it is possible for a Special Needs Trust to be created with the child's own funds (such as those from the settlement), and not have the trust disqualify the child from government assistance. If the child is under age 65 when the trust is created and the child is disabled under social security regulations, such a trust is possible. The only requirement is that the government be reimbursed at the death of the child from the trust for medical expenses paid from the Medicaid program.
An excellent resource for parents is a book called "Planning for the Future: Providing a Meaningful Life for a Child With a Disability After Your Death" by L. Mark Russell, American Publishing Company.
Thanks to Mark Worthington, Attorney, Massachusetts