Grandparents who want to be generous to their special needs grandchildren, are often surprised when the child’s parents tell them not to. With the number of disabled individuals five years and older totaling nearly 58 million, that’s a lot of disappointed grandparents. But it’s important to respect their parent’s wishes. Here’s why.
Giving money directly to a special needs child or adult—especially if they're already receiving government benefits—can create big problems, as CBS News reports in “’Special needs’ people need special financial planning.”
If a person with special needs has more than $2,000 in their own name, he or she risks the loss of the government benefits that he or she already receives. It’s a major headache to get them back. Instead of giving a lump sum of cash to a special needs person, the money should be structured in a way that meets government benefit requirements.
This is important because children with disabilities, like Down syndrome, now have a much longer life expectancy. As a result, the dependent person will probably outlive the parents. However, they will still require care throughout their life. Now, many special needs adults live independently or in homes with little assistance. However, this doesn't mean that their government program benefits can cover their everyday needs. Therefore, it’s crucial to plan ahead.
There are several ways to have your money benefit people with special needs throughout their lives, without the loss of their federal benefits. One way is to create a special needs trust. This is a trust with the explicit purpose to "supplement, not supplant" federal and state assistance programs and to create a better quality of life for this person. A special needs trust can provide for special medical equipment, eyeglasses, and vacations.
Work with an experienced estate planning attorney to create a special needs trust, because there are many rules and regulations involved. For example, the beneficiary (the individual with special needs) can't be a trustee—there must be a designated trustee or "third-party provider" who dispenses the money.
Another important part of an estate plan for the future of a dependent with special needs is a "letter of intent." These are instructions that state what the guardian wants to happen in the future. It sets out everything a person with special needs requires, their history and what you and the person want in the future.
Another alternative is an ABLE (Achieving Better Life Experience) account. This allows contributions to a maximum of $15,000 annually (for 2018), provided the person is diagnosed as disabled prior to age 26. The maximum amount of money that can be in this account before the disabled person loses his or her government benefits is $100,000. An ABLE account can be used for expenses like education, employment training, health, legal fees and funeral expenses.
Avoid these common mistakes that parents and caregivers make when planning:
- Disinheriting the child with special needs. Government benefits help provide food, shelter, and medical care, but remember it is not more than the bare bones necessities.
- Placing assets in your child's name. To qualify for government benefits like SSI or Medicaid, a person can’t have more than $2,000 in assets. If you leave funds or convertible assets directly to your child with special needs, they’ll need to be "spent down" to qualify for benefits.
- Inadvertently naming a person with special needs as a beneficiary. Naming a child with special needs on a Life Insurance policy, IRA, 401(k) or other qualified retirement plan by naming all “children” or “grandchildren” when one of the “children” or “grandchildren” has special needs can disqualify a child from receiving Governmental benefits.
- Relying on your other children to take care of their special needs sibling. This is a lot to ask of a brother or a sister, and it can cause resentment.
- Leaving money to your other children to support their sibling with special needs. This isn’t a good idea because the funds could be lost if the caregiving sibling dies, gets divorced or is sued, goes bankrupt, or just spends the funds. There's also no accountability.
- Savings bonds or 529 College Savings accounts in the child’s name. These are treated like any other asset: if the value is more than $2,000, a special needs individual could lose government benefits.
Although this is a brief overview of planning for special needs, it’s important to seek advice to ensure your estate plan works for you and your family. Every individual with special needs has different circumstances, so it’s important to explore your options with an experienced estate planning and special needs attorney.
For more information on planning for special needs individuals, explore our website and contact us to schedule your consultation today!
Reference: CBS News (December 25, 2017) “’Special needs’ people need special financial planning”