Creating an Estate Plan for a Child with Special Needs 

The phrase special needs may apply to many different kinds of learning disabilities or cognitive, physical, or behavioral issues, and a person could be born with a disability or develop one later in life because of an illness, medical complications, or some debilitating injury or accident. A special needs designation typically applies to a person’s eligibility for different kinds of special services, programs, and governmental benefits, and any individual who is currently trying to establish an estate plan for a child who has special needs will want to work with an experienced estate planning attorney in Maryland. 

Financial planning and estate planning can both be challenging enough on their own, but estate planning for a child with special needs can be even more difficult. Qualifying for public benefits can involve various government regulations that may influence both the levels of support for and the transferring of assets to your family members with special needs, so a Special Needs Trust (SNT) may be the best option in many scenarios.

Tips for Estate Planning for a Child With Special Needs

Public Benefits for Special Needs

Many disabled individuals can be eligible for public benefits, and the federal government will consider a child to be disabled for purposes of Supplemental Security Income (SSI) benefits when the child has any kind of medically determinable physical or mental impairment that is resulting in marked and severe functional limitations with an expectation to be long-lasting or fatal. For a person to qualify for certain public benefits, household income cannot exceed certain thresholds that will depend in part on the number of other children in a household, the number of parents, and whether the household income is earned or unearned.

The government will also consider an adult to be disabled when they have a medically determinable physical or cognitive impairment making them unable to engage in any substantially gainful activity, and the disability again has the potential to be long-lasting or fatal. Adults must satisfy income and asset tests to qualify for certain benefits.

An income limit test for adults can be very complicated, depending on a mix of their earned, unearned, in-kind, and deemed income, but an asset test will be more straightforward. A person who is seeking SSI or Medicaid cannot own assets in excess of $2,000 (or $3,000 for a married couple), and certain assets such as a home, household possessions, and a car will be excluded from the definition of assets. 

Authorized by the Omnibus Budget Reconciliation Act of 1993, SNTs exist to allow families to provide additional resources for disabled family members without disqualifying them from government benefits. An SNT can be structured so that trust assets will not be deemed to be assets of a disabled beneficiary and allow for distributions to be made for their benefit.

An SNT intends to provide for extra needs not covered by governmental benefits. An SNT must explicitly state that a trust intends to provide supplemental and extra care beyond that which the government provides and has no intention of being a basic support trust.

An SNT may provide for a disabled person’s necessary equipment, training and education, transportation, insurance, dietary needs, computers or other electronic equipment, entertainment, and other types of quality of life enhancements. It could hold everything from cash and investments to real property.

Common Kinds of SNTs

A first-party trust will be funded through a disabled individual’s own assets, which may be assets that were gifted, inherited, or awarded as damages from a settlement of a lawsuit. Disabled people can fund trusts with their own assets (or a court-appointed conservator or guardian could do it on their behalf) and still be eligible for Medicaid benefits and SSI. 

Upon a disabled person’s death, a self-funded SNT can be subject to a payback provision that requires any remaining trust assets to be repaid to the state agency which administered their Medical Assistance Program. 

A third-party trust, on the other hand, can be created by a family member to ensure a beneficiary receives the present and future care they would want and expect. The assets in a trust will again not be regarded as owned by a disabled person, thus allowing them to continue to qualify for government benefits.

Such trusts can be ideal for gifts and/or inheritances from parents, other family members, and friends who want to support a disabled person. An SNT can also be named as a beneficiary under a will, revocable trust, life insurance policy, or retirement account. 

The cost of caring for any disabled person can be very high, and even while medical expenses could be covered by Medicaid, there can still be other financial expenses such as physical therapy, custodial care, or special assistance that are not covered and may be significant. Parents wanting to leave bequests to their disabled children should set up SNTs so that they receive inheritances for the continued care of children, and the same trusts can be used to receive gifts and/or inheritances from other family members or friends.

Adequate funding of long-term care requirements can also be achieved through life insurance. The trustee of an SNT can be designated as a beneficiary of a life insurance policy to avoid jeopardizing government benefits eligibility.

Call Us Today to Schedule a Free Consultation with a Maryland Estate Planning Lawyer

If you are dealing with confusion about the SNT process and what rights you might have, know that you are not alone. The Law Offices of Clifford M. Cohen, an estate planning firm in Maryland, understands how confusing it can be for parents to set up SNTs for children with special needs, but we can work closely with you to help you achieve your long-term goals.

Our firm has more than three decades of legal experience in these areas, so you can be confident that you are getting thorough and trusted advice. You can call (202) 895-2799 or contact us online to set up a free consultation with a DC-area estate planning lawyer today.