Parents of children with special needs often say they plan to distribute their entire estate to their children without special needs so they can take care of their sibling with special needs. Some parents believe the opposite – that they need to leave more to their child with special needs since they believe their other children will take care of themselves. But how do you know which approach is right for you?
Working with a specialized estate planner can alleviate concerns about unequal distributions to children and prevent innocent but costly mistakes in planning your estate. An estate planner with experience in special needs planning is practiced in navigating the complex interpersonal relationships between parents and children as well as among siblings. Most importantly, a specialized estate planner understands the importance of creating a plan that is tailored to your specific needs and circumstances.
Parents: if you are concerned about one or more of your children with unique needs, here are some simple yet effective ways to dispose your assets while keeping things fair for all of your children.
Third-party special needs trusts: Families with children with special needs can set up a third-party special needs trust (“SNT”) to allow their children to benefit from an inheritance or gift from a friend or family member without jeopardizing their child’s eligibility to receive government benefits. Drafted properly, these trusts are invaluable for the child’s benefit. They allow more than just a parent or grandparent to pass down wealth into these trusts. Any person— an aunt, uncle, family friend etc.— who might want to bequeath assets to this child can do so by naming the third-party SNT as a beneficiary of their estate. As long as this trust is managed and administered properly, none of the assets remaining after the death of the child-beneficiary is available for Medicaid recovery.
Retirement plans: Since the passing of the Secure 2.0 Act, individuals with special needs now have some additional benefits compared to adult children without these special needs. A chronically ill or disabled individual, also referred to as an eligible designated beneficiary (“EDB”) under the Secure Act, can inherit retirement plans through a SNT without jeopardizing their eligibility for government benefits. Additionally, they can take advantage of the life expectancy stretch that is otherwise not afforded to a non-spouse or non-EDB.
Life insurance is a great equalizer: Life insurance often gets a bad reputation. People are asked to purchase insurance when their children are young, when there is a perceived greater need for insurance at that time. However, once the children are older, friends and well-wishers offer unsolicited advice that money is wasted on life insurance and claim there are other “better” investment opportunities than wasted life insurance premiums. However, we see insurance as a great equalizer that can help balance an otherwise unequal distribution of assets. For example, if Mr. and Mrs. Drew have a net worth of $2 million and a $1 million joint-to-die life insurance policy, they could name their daughter’s SNT as a beneficiary while the rest of the estate could be divvied up between their other two children. Conversely, for those parents who have a home of significant value which they would like their child with special needs to continue to live in after they are gone, one or more life insurance policies naming the other two children as beneficiaries could balance out the estate.
Consulting with a specialized estate planner allows families to dispel mistaken notions about the disposition of their estates while giving them peace of mind knowing that their affairs are organized during their lifetime and ensure their children’s well care long after
they are gone.
Contact Rao Legal Group, proud sponsored member of the Special needs Alliance (SNA), for more information!