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Financial and Legal Planning for the Special Needs Child
Any parent knows, saving for your child's future is what is best for him/her. Many of us open a savings account the day our children were born. We make sure to put our child/ren as our beneficiary on our life insurance and do all the pertinent financial planning for our child/ren's future as best as we know how. However, did you know that doing these things for a special needs child could be the worst decision you could ever make for your child's future?
Financial and legal planning for a special needs child is VERY different from planning for a mainstream child. Why do you ask? The answer to that is because saving money and thus having it in your child's name or having your child as a beneficiary on your life insurance plan will make your child ineligible for all of the services he/she is entitled to as special needs. Major federal services such as Medicaid and SSI (Social Security Income) are two vital services that your child needs growing up and into adulthood. These federal programs will look to these assets (savings and checking accounts, cd's, savings bonds, etc.) as a means for the child to be able to financially support themselves when as a parent to a special child myself, I know for sure that the costs for therapy, doctor visits, adaptive equipment, and specialized services are constant and way beyond anyone's means. If you are a billionaire, then okay you do not need Medicaid or SSI. Nevertheless, if you are an every day working person as the majority of us are, then you need to listen to this.
While your special needs child is under the age of eighteen years of age, the government looks toward the parent/s' income and/or assets to determine eligibility for services. Once the child turns eighteen years of age, then the government will look to the child/ren's assets if any. We all know that in order to have anything in America you need a social security number. We need a social security number to open a bank account, to get a job, to own/rent a home, etc. Our social security numbers are our unique identification numbers. When applying for Medicaid and SSI your child's social security number is on file and so is yours (if the child is under the age of eighteen.) So, if you have a savings account or checking account, federal agencies can "see" your assets, thus deny your child for services if the monetary amount exceeds their allowable income guidelines.
Also, did you know that if by the age of eighteen you know that your special needs child does not have the mental capability to make decisions for him/herself, there is nothing you can do legally to still be your child's legal guardian if you do not do anything about it PRIOR to his/her eighteenth birthday? In addition, the one thing we as parents do not even want to think about...what happens if you or your spouse (if applicable) passes away, suddenly leaving behind your special needs child/ren? Who will become the child/ren's guardian? How will the guardian know how to care for your child/ren? Will the guardian know all the names of the therapists? How will the guardian know that little Tommy likes oatmeal in the morning and nothing else if little Tommy is not verbal?
Scary when you actually think about it right? I thought so too when all these questions were first presented to me concerning my daughter with Autism.
So what is the answer? I am the organizer of a group called the "Queens County Parents Autism Coalition (QCPAC)" and I, along with my assistant organizer knew that these were very important issues that no parents with children of special needs should dismiss. Therefore, we organized a workshop where we met with a Special Needs Planning Insurance Professional and Special Needs Legal Planning firm. Meeting with professionals in this field will help you put together a special needs and legal planning portfolio to prepare for the future of your special needs child/ren. You will write what is called a Letter of Intent, which is a love letter to the family who will care for your child. This letter will explain (like a manual) what your special needs child/ren's daily life consists of. It will also list your child's care team with their full name, address, and phone number, i.e., teachers, doctors, specialists, therapists, etc.
This was one of the hardest "letters" I had to ever write, but I knew that if I was to pass on suddenly, I would want my chosen legal guardian to EXACTLY know how to care for my daughter especially because she is not fully verbal yet.
The next thing would be to locate an estate-planning attorney in your area, who specializes with special needs planning. This attorney will put together a will and set up a special needs trust. The special needs trust is an entity in itself, which will carry its own EIN (Federal Tax Identification Number.) It is the special needs trust that will contain the money you have been saving for your child and which will be named in any wills. Having a special needs trust will remove any assets from your child's name and as a result NOT affect any of the services your special needs child is rightfully entitled. You will also discuss with your attorney how to go to surrogate's court when your child is seventeen years of age in order to gain continuous guardianship of him/her in the event you feel your special needs child does not have the mental capacity to be able to make the proper decisions for him/herself as a legal adult. Lastly, purchasing a life insurance plan is a wise decision. You should purchase a life insurance from a company that specialized with special needs planning. They will have many different options that will you are your budget and give you the flexibility to fit your lifestyle. Once the special needs trust is established, you want to make sure to name, the special needs trust on the life insurance instead of naming your child.
As a mom to a daughter with Autism, I cringe at the thought of not being able to here for my daughter. However, realistically we are all not promised tomorrow, let alone today. We have to be prepared two hundred times more than the average because we are parents of a special needs child, who will need long term, consistent care. The long-term goal is to be around for many years to come, but to be prepared just in case we are not.
Estate Planning with the Special Needs Child in Mind
Estate planning is an important part of your financial health. In many families, the estate planning involves a distribution of assets to the children in equal forms. For families with a special needs child, there may be some additional considerations to be made in terms of distribution and financial planning.
Disabled children often require additional financial support than their non-disabled siblings. When meeting with a financial advisor to address the establishment of your financial circumstances, and determining how your estate should be divided, it is important to consider not only what the needs of the disabled child may be, but to also consider the financial needs and support of the individual who will care for your child when you are gone.
Because Medicaid and Social Security Income, SSI, provide benefits to children with special needs, many of your child's financial needs will be met through these programs. In addition, the establishment of a third-party special needs trust, SNT, should also provide for additional services your child may require that are not covered under the Medicaid or SSI programs.
One of the most difficult aspects of estate planning involves the distribution of your estate when your children become adults. In many cases, especially in families with small children, a common trust is established, allowing for financial support of the children equally. The guardian of the children is allocated a specified amount of funds for each child at regular intervals.
But, what occurs when your children become adults and no longer require financial support by a guardian and the common trust still carries a balance? In many cases, parents are making the decision to allocate the remainder of their common trust to the disabled child, commencing on the date the youngest child reaches the age of majority. Allocating the remainder of the common trust assets, most disabled children, at this point, will have the funds transferred to a special needs trust to handle their care and financial support during their adult life. While this generally does not leave any funds for the non-disabled children, it can provide for their care until they reach adulthood at which point they should be self-sustaining.
In families with young children, estate planning is important. When the family includes a disabled child, there are many approaches you can take to managing your assets and the care of your children. Consider establishing a common trust to allocate assets and funds to your children equally and then transfer the balance of those assets to a special needs trust to ensure your disabled child is cared for during adulthood.
Protecting a Disabled Child's Assets Through a Charitable Remainder Trust
As the parent of an adult child who is disabled, there are dynamics of your personal financial planning that must incorporate unique financial considerations for your child. While many parents with disabled children are familiar with the Special Needs Trust and the financial opportunities associated with it, there are other financial vehicles that can provide for your child after your passing.
If you intend to leave a large amount of money or assets to a child with a disability, you may want to consult a financial planner regarding the use of a Charitable Remainder Trust as a way in which to provide for your child with the advantage of an immediate tax benefit. While CRT is commonly considered as a way in which to leave money and assets to a charitable organization, it can also be used to provide for your disabled adult child.
With the creation of a CRT, there is a requirement that at least one non-charitable beneficiary be named in the trust. This means, in addition to any charitable donations of money or assets, you must also list a person, trust or organization that is not considered a charitable organization in terms of IRS codes and regulations. If your disabled child has a Special Needs Trust established, you can name your disabled child's SNT as the non-charitable organization.
By utilizing the SNT as the non-charitable beneficiary in your CRT plan, your adult child will be provided a specific amount of monetary payments, or assets, at the time of your death. To establish the CRT, you must use a financial planner and establish the plan through a Charitable Remainder Annuity Trust or Charitable Remainder Unitrust. Establishing the annuity amount when the trust is established is always recommended. Once the annuity amount and time table are established, the trust manager will ensure the monetary benefits, or asset distribution, is made to the charity you have selected as well as distributed to your child's SNT on an annual basis.
Your child's Special Needs Trust, SNT, can provide for a unique opportunity to distribute those funds received at whatever interval you so designate when the trust is established. The one disadvantage to this arrangement, however, is in the 20 year limitation in payments. Under the tax code, when a trust is named as the non-charitable beneficiary, payments can not exceed 20 years. Therefore, if your child's life expectancy may exceed 20 years, your financial planner will to address the transfer of funds in the few years prior to that expiration.
Providing, financially, for your disabled child is important to their health and welfare. When considering your estate financial planning, ask your financial planner about the use of a CRT as a vehicle by which to provide financial benefits to your child after your passing.