Chicago Estate Planning: Planning for the Special Needs Child or Adult
Having a special needs child can, I am sure, be both the biggest challenge and greatest reward of parenting. One of the biggest challenges for many is the fact that often, the parent will likely not out-live the special needs child. At some point, the special needs child will grow into an adult and will not be able to rely on the parent for all of his or her needs. This is the basis for what is known as Special Needs Planning.
Special Needs Planning is concerned with balancing two competing priorities: (1) conserving assets to the extent possible; while (2) assuring that the special needs child is provided for. The two underlying rules for special needs planning are: (1) 24/7 medical care and supervision costs A LOT; and (2) Medicaid/Social Security are in the best position to pay for this type of care.
So let’s assume the following example: Ma and Pa Smith have a child named Joe who is born with Down’s Syndrome. Ma and Pa take care of Joe up through Joe’s mid-20s. At some point, Joe qualifies for Medicaid and SSI (Supplemental Security Income…disability). Joe is placed in a group home and does well, with Ma and Pa visiting often. Joe has three other siblings as well. As Ma and Pa get on in years, they realize that they will not out-live Joe and they have to decide what to do with their assets. They certainly don’t want Joe left out in the cold after they die.
The primary planning tool for situations like this is the Third-Party Discretionary Special Needs Trust. This type of trust is designed to provide for Joe if needed, while maintaining his Medicaid and SSI eligibility. See, if Ma and Pa were to simply bequeath to Joe his share of inheritance, the assets could disqualify Joe for Medicaid and SSI. Why? Becuase these assets would be considered Joe’s and now maybe he doesn’t qualify under the Medicaid needs test…unless Joe is receiving $100M or some very large amount, there is no way this inheritance can pay for Joe’s care for years to come, so these assets will have to be “spent down” (on Joe’s medical care) before he would be able to re-qualify for Medicaid.
Don’t forget rules (1) and (2).
So how does the Third Party Discretionary Special Needs Trust (“SNT”) work? Let’s assume Ma and Pa want to equally divide their assets among their children. Basically, they would take care of this in their estate plan as normal. But, Joe’s share would not go directly to him…his share would go into an SNT for his benefit. The trustee of the SNT would likely be one of Joe’s siblings, or another loved one that Ma and Pa trust. The trustee would make sure that Joe has everything he needs and could use the money in the trust to buy things for Joe that Medicaid/SSI don’t cover (perhaps a television or food or additional clothing). But, these assets are not counted as Joe’s because Joe has no right to compel the trustee to make any distributions…distributions are completely discretionary on the part of the trustee.
The assets in the trust could then be split among Joe’s siblings after Joe’s death (Joe’s life expectancy is likely much less than that of his siblings).
So there you have it…a device that can bring some security to a special needs child after the death of his or her parents…making a tough situation a little bit easier. Of course, this type of arrangement can extend to others who have or may have special needs…like elderly or infirm parents or grandparents. Anyone for whom Medicaid/SSI is a needed resource can benefit from an SNT.
Related posts:
- Prince Harry and Estate Planning for your Kids
- Chicago Estate Planning 101
- Chicago Estate Planning: Revocable Living Trusts…can’t Beat It
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