Planning for Special Needs Children
A “special needs” child is a child who faces a physical or mental disability and may require needs-based benefits, such as Medicaid or Supplemental Security Income (SSI). A special needs child is precious, like any other child. But the same planning will not work for this unique child. Further, a lack of planning is even more problematic for a special needs child than it would be for a child without special needs. Let’s look at an example:
Mike has $900,000 in assets and has three children, Amy, Bobby, and Charlie, who has special needs. If Mike dies without a plan, his assets would be split equally among his three children. If they are adults at the time of Mike’s death, they would receive the assets outright. This could be problematic for many reasons. First, Mike may want a different allocation. He may want to provide more for Charlie because of his greater need. Also, he may want to leave Amy or Bobby’s shares in trust to provide divorce protection, asset protection, or simply protect their inheritances from their own immaturity. But an outright distribution is especially problematic for Charlie, as a special needs beneficiary. Charlie may be receiving SSI, Medicaid, or other needs-based benefits. If Mike dies without a plan, Charlie would inherit 1/3 of Mike’s assets outright. While the $300,000 of assets would be helpful to Charlie, it would make him ineligible for his benefits. He’d have to spend the $300,000 to cover his medical care and other things which his benefits had been covering.
If Mike had planned, he could have avoided this result. Mike could have left the assets for Charlie in a “special needs trust.” Amy or Bobby could be the trustee and distribute from the special needs trust for Charlie’s benefit. If Mike did this, Charlie would not be deprived of his needs-based benefits. Since Charlie’s inheritance would have been in a special needs trust, it would not have been counted as an available resource for Charlie. But, Amy or Bobby, as the trustee of Charlie’s special needs trust, could spend from it to enhance Charlie’s quality of life, by paying for his vacations, entertainment, classes, or other things to improve his quality of life. This would allow Charlie’s life to continue with as little disruption as possible after Mike’s death.
Mike also could contribute assets to an ABLE account which would complement a special needs trust. Up to $100,000 in an ABLE account would not jeopardize Charlie’s SSI. The ABLE account would not jeopardize Medicaid benefits, regardless of its size. (There may be only one ABLE account for a beneficiary.)
A special needs beneficiary has many struggles in life. But these struggles can be minimized if you plan in a way that doesn’t jeopardize their needs-based benefits.