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Planning for family members with special needs

When family members consider how to leave an inheritance to a loved one with special needs they are susceptible to making three common mistakes.

First, parents may decide to exclude their daughter with special needs from the terms of their wills altogether. When asked the reason, the parents describe her as having a physical or intellectual disability, so they decided to leave everything to their son with the understanding he will make sure his sister is cared for. This way, the parents assume, after their deaths their daughter will not be ineligible to continue receiving means-based public benefits such as SSI or Medicaid.

This quick-fix plan may give the parents a sense of security that they have provided for their daughter, but it is bound to have unintended consequences. For example, if the parents leave their home to their son with the understanding their daughter can live there, what happens if the son later loses it in a divorce? Or what if both the son and daughter lack the funds to maintain the property? Or what if the son dies and his second wife inherits the property and quickly sells it? Not to mention the stigma the daughter will feel from being singled out and left out of her parents’ estate plan.

The second common mistake is to leave assets directly to the person with special needs. Doing so will likely immediately disqualify her after your death from the public programs she relies on for housing or health care assistance. Also remember that in many cases an adult with disabilities may not even apply for needs-based programs until after her parents have passed away, especially if she lived with and was supported by her parents prior to their deaths.

The third common mistake is to only consider your children when planning. Many parents state their grandchildren will inherit directly from them if their child dies with them or before them. For example, if you are killed in a car accident with your adult son, your grandson with Down Syndrome will inherit directly from you so you need to make provisions for him in your planning.

In all the cases above it may be appropriate to establish a Third-Party Special Needs Trust to receive the inheritance on behalf of your loved one with special needs. You will need to name a trustee who will manage the funds on behalf of the beneficiary. If the trust is properly established and maintained, the assets in the trust will not disqualify the beneficiary from needs-based public programs. The assets in the trust may only be used for certain types of expenses, so you may wish to name a professional trustee or make sure the trustee seeks legal advice to stay well-informed of the current rules.

A Third-Party Special Needs Trust can be the right tool for many families to leave assets to a loved one with special needs. In 2014 Congress passed the Achieving a Better Life Experience Act (ABLE Act), to allow certain individuals with disabilities to open an ABLE account to save funds to be used for certain types of “qualified disability expenses.” ABLE accounts have been called the equivalent of a 529 college plan for those with special needs and are a much-needed tool for families to use instead of or in conjunction with a Third-Party Special Needs Trust. Many specific rules govern Third-Party Special Needs Trusts and ABLE accounts, so as always, visit with your attorney to determine if one is appropriate for your loved one.

This article does not constitute legal advice. Each individual should consult his or her own attorney.