Estate Planning Tips For Families That Include Persons With Disabilities

Estate Planning for families that include persons with disabilities requires special attention, and will typically include preparation of a trust that is designed to supplement available government benefits. These trusts are often referred to as Supplemental Needs Trusts. Understanding the pitfalls associated with supplemental needs planning is a must for all who assist families with children, grandchildren or other loved ones (such as parents) with disabilities. A few tips are offered below.

Tip #1: Don’t disinherit the supplemental needs beneficiary. Many persons with disabilities receive Supplemental Security Income (“SSI”), Medicaid or other government benefits that provide basic food, shelter and/or medical care. The loved ones of the supplemental needs beneficiaries may have been advised to disinherit them – beneficiaries who need their help most – to protect the public benefits. But these benefits rarely provide more than basic needs. And this solution (which normally involves leaving the inheritance to another sibling) does not allow loved ones to help their supplemental needs beneficiaries after they themselves become incapacitated or die. The best solution is for loved ones to create a supplemental needs trust to hold the inheritance of a supplemental needs beneficiary. A properly drafted supplemental needs trust will protect public benefits a beneficiary with a disability may be receiving, and it will provide for proper care of that individual throughout their lifetime.

Tip #2: Don’t rely on siblings to use their money for the benefit of a supplemental needs beneficiary. Many family members rely on their other children to provide, from their own inheritances, for a child with supplemental needs. This can be a very temporary solution, such as during a brief incapacity, if the other children are financially secure and have money to spare. However, it is not a solution that will protect a child with supplemental needs after the death of the parents or when siblings have their own expenses and financial priorities.

For example, what if an inheriting sibling divorces or loses a lawsuit? His or her spouse (or a judgment creditor) may be entitled to half of it and will likely not care for the child with supplemental needs. What if the sibling dies or becomes incapacitated while the child with supplemental needs is still living? Will his or her heirs care for the child with supplemental needs as thoughtfully and completely as the sibling did?

Siblings of a child with supplemental needs often feel a great responsibility for that child and have felt so all of their lives. When parents provide clear instructions and a helpful structure, they lessen the burden on all their children and support a loving and involved relationship among them.

Tip #3: Procrastination can be especially costly for supplemental needs beneficiaries. None of us know when we may die or become incapacitated. It is important for loved ones with a supplemental needs beneficiary to plan early, just as they should for other dependents such as minor children. However, unlike most other beneficiaries, supplemental needs beneficiaries may never be able to compensate for a failure to plan. Minor beneficiaries without supplemental needs can obtain more resources as they reach adulthood and can work to meet essential needs, but supplemental needs beneficiaries may never have that ability.

Tip #4: Don’t ignore a beneficiary’s supplemental needs when planning. Planning that is not designed with the beneficiary’s supplemental needs in mind will probably render the beneficiary ineligible for essential government benefits. A properly designed supplemental needs trust promotes the comfort and happiness of the supplemental needs beneficiary without sacrificing eligibility.

Supplemental needs can include medical and dental expenses, annual independent check-ups, necessary or desirable equipment (for example, a specially equipped van), training and education, insurance, transportation and essential dietary needs. If the trust is sufficiently funded, the disabled person also can receive funds to be used for quality-of-life-enhancing expenses: the types of benefits families currently provide to their child or other supplemental needs beneficiary. However, the rules can change on the types of expenses that can be paid for by a supplemental needs trust. Therefore it is important to continually seek advice when drafting or administering a supplemental needs trust.

Tip #5: A supplemental needs trust does not have to be inflexible. Some supplemental needs trusts are unnecessarily inflexible and generic. Although an attorney with some knowledge of the area can protect almost any trust from invalidating the beneficiary’s public benefits, many trusts are not customized to the particular beneficiary’s needs. Thus the beneficiary fails to receive the benefits that the parents or others provide while they were alive.

Another frequent mistake occurs when the supplemental needs trust includes a pay-back provision rather than allowing the remainder of the trust to go to others upon the death of the supplemental needs beneficiary. While these pay-back provisions are necessary in certain types of supplemental needs trusts, an attorney who understands this area and knows the difference can save family members and loved ones hundreds of thousands of dollars, or more.

Tip #6: Exercise great caution in selecting a trustee. Loved ones or family members can manage the supplemental needs trust while alive and well if they are willing to serve and have proper training and guidance. Once the family member or loved one is no longer able to serve as trustee, they can choose who will serve according to the instructions provided in the trust. Families or loved ones who create a supplemental needs trust may choose a team of advisors and/or a professional trustee to serve. Whoever they choose, it is crucial that the trustee is financially savvy, well-organized and of course, ethical.

Tip #7: Invite others to contribute to the supplemental needs trust. A key benefit of creating a supplemental needs trust now is that the beneficiary’s extended family and friends can make gifts to the trust or remember the trust as they plan their own estates. For example, these family members and friends can name the supplemental needs trust as the beneficiary of their own assets in their revocable trust or will, and they can also name the supplemental needs trust as a beneficiary of life insurance or retirement benefits. Unfortunately, many extended family members may not be aware that a trust exists, or that they could contribute money to the supplemental needs trust now or as an inheritance later.

Tip #8: This is an ever-changing area of the law. The rules applicable to supplemental needs trusts and planning are constantly changing. For example, the Affordable Care Act now makes private health insurance an option for people with disabilities. But as you know, the future of the Affordable Care Act is uncertain, and it is likely to change. Also, currently, private insurance currently will still not cover the costs of long-term care, and this is also an evolving area. Planning with an attorney that is able to advise you concerning the latest changes is essential.

Planning for a supplemental needs beneficiary requires particular care and knowledge on the part of the planning team. A properly drafted and funded supplemental needs trust can ensure that a supplemental needs beneficiary has sufficient assets to care for him or her throughout the beneficiary’s lifetime.

Please contact me if you have any questions regarding planning for supplemental needs beneficiaries.

Sheryl J. Manning

Sheryl J. Manning, PL.
1104 Ponce de Leon Blvd
Coral Gables, Fl 33134
(786) 804-3456 Direct Line
(305) 445-3721 Receptionist

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