Unfortunately, some of us will have the misfortune of leaving behind loved ones who are not of sound body or mind and have mental or physical impairments. Unique financial planning and special arrangements may be called for to ensure that these loved ones receive the support they need throughout their lifetime. This article addresses the need for planning for disabled loved ones under the age of 65.
Many times, the best way to provide continuing care for a disabled loved one is to establish a trust. This trust may be executed during your life (inter vivos) or upon your death through your Will (testamentary). Whichever the case, the trust should be structured to provide support for the disabled loved one well into the future, if necessary.
Protecting SSI Benefits
In many cases, a disabled person will be eligible for government benefits, such as Supplemental Security Income (SSI) and Medicaid. SSI is a program administered by the Social Security Administration to assist disabled individuals with limited assets and income. If you leave anything other than nominal assets directly to a disabled loved one who is receiving SSI benefits, they will be taken off SSI until the inherited assets are depleted. At that point, they will need to re-qualify for SSI benefits. A Special Needs trust will prevent this untoward occurrence.
What is a Special Needs trust? Essentially, it is a trust that provides for any items not covered by the individual's SSI benefits. The trust cannot provide for the basic needs or any other needs of the disabled person that would normally be covered by SSI - only those that are above and beyond the SSI benefits. The trust is governed by applicable federal and state regulations, which are lengthy and quite complex. It should be carefully drafted with the assistance of a legal professional to ensure that it meets all government regulations and does not cause the forfeiture of SSI benefits.
Other Issues to Consider
Creating a Special Needs trust requires much planning and thorough evaluation of your overall estate plan. Always factor in the use of life insurance. When dealing with a disabled loved one with a permanent need, permanent life insurance may be very desirable.
In some cases, it may be practical to "disinherit" your disabled heir in order to preserve government program eligibility. That decision should be made in conjunction with your attorney after fully evaluating all of the government programs that your child is utilizing and those that may be available as a further resource.
Finally, selecting a Trustee for the Special Needs trust is an important decision. Choosing a family member who is familiar with the needs of the child may seem like the most appropriate choice, but oftentimes, selecting a corporate trustee is a wiser decision. Because of the complexity of administering this type of trust and the length of time it may be in existence, the use of a corporate trustee may be your most beneficial option.
When dealing with a disabled dependent, the planning process may take a considerable amount of time, so you should begin the process as soon as possible. Particularly if the disabled person is due to receive funds through a personal injury action or is eligible to receive assets from an UGMA or UTMA account, in which case your trust should be established and ready to go once the distribution is made.
Again, it is important you consult with an attorney who is skilled in this area of estate planning to correctly lead you through the planning process and establish a course of action that will ensure the future care of your disabled loved ones.
This article is for informational purposes only and is not intended as an offer or solicitation for the sale of any financial product or service or as a determination that any investment strategy is suitable for a specific investor. Investors should seek financial advice regarding the suitability of any investment strategy based on their objectives, financial situations, and particular needs. This article is not designed or intended to provide financial, tax, legal, accounting, or other professional advice since such advice always requires consideration of individual circumstances. If professional advice is needed, the services of a professional advisor should be sought.