As the parent of a child with special needs, the need for comprehensive estate planning is increased if you hope to provide for your child financially while you are here and after you are gone. When your child has special needs, you must be careful not to jeopardize your child’s eligibility for state and federal assistance programs when he/she becomes a legal adult. Incorporating a special needs planning component into your overall estate plan is important. With that in mind, the Beverly special needs planning attorneys at Legacy Care Law Firm discuss what you need to know to protect your special needs child.
You Are Not Alone
Raising a child with special needs can be challenging and it may feel like no one else understands those challenges. The following facts and figures, however, indicate that you are among many parents facing similar challenges:
- Nearly one-fifth of all Americans have a physical, sensory, or intellectual disability, according to the National Organization on Disability.
- More than 41 million Americans, or almost 15% of the population age 5 and older, have some type of disability.
- One in every 26 American families reported raising children with a disability
The Financial Reality of Special Needs
The average cost to raise a child to adulthood is staggering, which is why most parents try not to focus on it. As the parent of a child with special needs, however, you cannot afford to ignore the financial reality of raising your child because the cost will likely be even higher. Along with all the other expenses associated with raising a child, you may also incur ongoing expenses for specialized equipment, surgeries, and medical specialist visits as well as prescription medication, therapists, and paid caregivers. Furthermore, your child is likely to continue to require specialized care as an adult.
Your legal obligation to provide financial support to your child may end when he/she reaches adulthood; however, you may still choose to help financially. Because your child may also depend on various state and/or federal assistance programs as an adult, such as Supplemental Security Income (SSI), Supplemental Nutritional Assistance Program (SNAP – food stamps), Medicaid, or Section 8 housing, you must be careful how you provide that continued financial support. Eligibility for those programs is determined, in part, by an applicant’s income and assets. Your direct gifts, therefore, could cause your child to lose his/her eligibility for assistance. Special needs planning uses estate planning tools and strategies to get around this obstacle and allow you to continue to provide for your child without jeopardizing his/her eligibility for assistance. One of the most used tools in a special needs plan is a special needs trust.
How Can a Special Needs Trust Protect My Child?
A special needs trust, also referred to as a “supplemental” needs trust, or “SNT,” is a specialized irrevocable living trust that allows you to continue to provide for your child without jeopardizing his/her eligibility for assistance. Assets held in an SNT are used to “supplemental” the care and maintenance provided by assistance programs. For example, funds from an SNT might be used to purchase a vehicle or to take a vacation. A properly drafted Special Needs Trust protects your child by sheltering the assets held in the trust and ensuring that those assets are used when determining eligibility for assistance programs.
A SNT can be a first-party, third-party, or pooled trust. Also referred to as a “self-settled” trust, a first party special needs trust is established using assets of the person with special needs. The beneficiary of the trust must be someone with special needs or who is disabled. The trust is established by a parent, grandparent, guardian of the person with special needs, or by a court; however, it is funded using assets owned by the beneficiary. This type of special needs trust is most frequently needed when someone with special needs (or a disabled individual) receives a lump sum of money.
A third-party special needs trust is established by a third party with assets owned by the third party for the benefit of a person with special needs. This type of trust is most often established by a parent, or other family member, for the benefit of a child with special needs. A third-party special needs trust is funded using assets gifted by the parent, grandparent, or other family members.
A pooled SNT allows the assets of many people to be “pooled” so that anyone wishing to protect assets intended for the benefit of a beneficiary with special needs can take advantage of a Special Needs Trust.
How Can Establishing an ABLE Account Protect My Special Needs Child?
An ABLE Account is a tax-advantaged savings account for individuals with disabilities and their families. ABLE Accounts were made possible by the passage of the Stephen Beck Jr. Achieving a Better Life Experience Act, commonly known as the ABLE Act. The ABLE Act was intended to “secure funding for disability-related expenses on behalf of designated beneficiaries with disabilities that will supplement, but not supplant, benefits provided through private insurance, Medicaid, SSI, the beneficiary’s employment and other sources.”
The intended beneficiary is the owner of the account but contributions can be made by anyone, including the beneficiary, family, friends, a Special Needs Trust or a Special Needs Pooled Trust.) All contributions, however, must be made using post-taxed dollars and are not tax deductible for purposes of federal taxes. Some states, however, allow for state income tax deductions for contributions made to an ABLE account. A primary benefit of establishing an ABLE Account is that the income earned by an ABLE Account is not taxed.
Contact Our Special Needs Planning Attorneys
For more information, please join us for an upcoming FREE seminar. If you have additional questions about special needs planning, contact our special needs planning attorneys in our North Andover, Woburn, and Beverly offices at (978) 969-0331. Our Salem and Nashua, New Hampshire office can be reached at (603) 894-4141.
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