How to Plan for a Loved One with Special Needs
Sunday, December 27, 2015
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Planning for a loved one with special needs can be a daunting task. The plan needs to be sufficiently flexible to account for the unknown, but sufficiently tailored to meet the needs of your loved one now and in the foreseeable future.

Here are a few tips to keep in mind when planning for your loved one with special needs.

Estate Planning

The first step in planning for your loved ones is planning for yourself. Be sure to have a Last Will and Testament and, if appropriate, a Revocable Living Trust. If you do not have the proper estate planning documents in place, then your loved one will stand to inherit his or her share of your estate outright. This inheritance may pose a significant problem for his or her maintaining eligibility for means-tested government benefits.

Consider drafting estate planning documents which provide that any share of your estate distributable to your loved one with special needs should be distributed to a Supplemental Needs Trust (also known as a Special Needs Trust, or SNT). If properly drafted, the SNT will allow your loved one to inherit while maintaining his or her eligibility for means-tested government benefits. It should also be drafted to allow the addition of property from individuals other than the grantor (you) so that other family members can appropriately plan for your loved one. The beneficiary (your loved one) would not have direct access to the income or principal of the SNT. Instead, the appointed trustee would have complete discretion over distributions to or for the benefit of the beneficiary.

Remember: The drafting and administration of an SNT is state-specific, as are the eligibility requirements for each state. Be sure to consult with an attorney well versed in this area of the law.

If you are the parent of a minor with special needs, then the Last Will and Testament should also nominate a guardian and successor guardian in the event that you (and the child’s other parent) are deceased or otherwise unable to serve as natural guardian. Although a Court proceeding will be necessary to formally appoint the individual as guardian, nominating the individual in your Will provides the Court with your wishes.

Choosing a Trustee

The role of the trustee of the SNT is first and foremost to administer the funds for the benefit of the beneficiary. It is possible, and often advisable, to appoint both a corporate trustee and a family trustee. The role of the corporate trustee is to invest and manage the funds held in the trust. The role of the family trustee is to make day-to-day decisions regarding the distribution of funds. Thus, the family trustee should be someone intimately familiar with the needs of your beneficiary, and should be someone able and willing to make the decisions necessary to meet those needs.

Dealing with Inheritance Despite the Planning

Your extended family should be aware of the SNT that you drafted for the benefit of your loved one with special needs and should provide that any inheritance distributable to him or her should instead name the SNT as the beneficiary.

If this is not done, however, then your disabled loved one may inherit property outright. There is a remedy for these situations: A parent, grandparent, legal guardian, or the court can establish a self-settled SNT for the benefit of the disabled individual, to be funded with such inheritance. The same type of trust would be established if the disabled beneficiary received a settlement from a personal injury or medical malpractice action.

However, this type of trust will include a pay-back provision, which provides that upon the beneficiary’s death, Medicaid is to be paid back for costs covered on behalf of the beneficiary during his or her lifetime. Legislation is currently pending to allow the disabled individual who has the requisite mental capacity to establish this type of trust on his or her own.

Letter of Intent

A Letter of Intent is not a legally binding document, but is extremely important and should be completed (and then regularly updated) when your estate planning documents are prepared. The Letter of Intent provides a guideline for your loved one’s care plan. It lays out medical information, emergency contact information, academic and social information, and other pertinent information necessary to manage the individual’s daily care needs.

Once complete, a copy of this document should be provided to the trustee(s) of the SNT and, if your loved one is a minor, to the nominated guardian.

Retirement Accounts and Life Insurance Policies

Certain assets will not be transferred to your revocable living trust, including assets with designated beneficiaries such as retirement assets and life insurance policies. When discussing your overall estate plan with your legal team, it is important to consider these assets as well.

Naming a disabled individual as a beneficiary on a retirement account poses potential problems for his or her eligibility for government benefits, which are state-specific, as well as potential tax consequences. You may consider naming other children or loved ones as the beneficiary of these accounts, and then providing an equalizing bequest to the disabled individual from another resource.

The SNT should be named as the designated beneficiary of the disabled individual’s share of the life insurance proceeds.  He or she should not be named as an individual.

Advance Directives or Guardianship

Once your loved one with special needs turns 18 years old, he or she is a legally emancipated adult. This means that you are not able to make decisions on his or her behalf, despite the disability. If your loved one has the capacity to do so, he or she can prepare and execute Advance Directives, including a Power of Attorney (for financial and legal decisions), a Health Care Proxy (for medical decisions) and a HIPAA Medical Privacy Release.

If he or she is unable to understand the nature of these documents, or the nature and consequences of his or her disability, then a guardianship will be more appropriate. This proceeding varies state-to-state, and so it is important to speak with an attorney familiar with the local rules. This guardianship proceeding is different from the guardianship proceeding mentioned above. In this context, the proceeding is for the appointment of a legal guardian for the individual’s lifetime (or until circumstances warrant the release of said guardian), rather than a guardian until the individual reaches the age of majority.

Eligibility for Means-Tested Government Benefits

The two most well-known, means-tested government benefits available for disabled individuals are Supplemental Security Income (“SSI”) and Medicaid.

SSI is available to an individual deemed disabled by the Social Security Administration, has less than $2,000 in his or her name, and has qualifying work credits. An individual receiving SSI is categorically eligible for Medicaid.

Medicaid is a jointly funded federal and state program. While Medicaid is available in all states, the resource and income allowances for the program differ from state to state. For example, in New York in 2015, the resource allowance for an individual residing in the community is $14,850 and the income allowance is $845, while in California in 2015, the resource allowance for an individual in the community is $2,000 and the income allowance is $600. In Illinois in 2015, the resource allowance for an individual in the community is $2,000 and the income allowance is $981.

Transition and Advocacy

You are your loved one’s best advocate. Understanding the local rules and regulations, and the resources and supports available to him or her, are paramount in this process. Transitioning to the community when the individual graduates high school or turns 18 requires a lot of legwork. There are government agencies in each state that provide the community support you may be seeking for your loved one, including residential placements, day habilitation, and vocational training and placement (for example, in New York, the Office of People with Developmental Disabilities and ACCES-VR).

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