Estate Planning Documents for Adults with Special Needs

Thanks to technology and medical research, more and more children with special needs are living productive lives well into adulthood, making it more and more likely that they will outlive their parents. As a result, parents must plan for their adult children with special needs.

A significant number of these adult children with special needs will require government programs such as Medicaid and SSI as well as other programs. The problem lies in the fact that the resources considered to be available to a special needs adult can reduce, or totally eliminate, that person’s eligibility for such programs.

A carefully-crafted special needs trust can preserve the eligibility for government benefits while providing additional financial resources for the special needs adult.

Self-Settled Special Needs Trust

While a special needs trust is considered the “centerpiece” of any estate plan intended to benefit a special needs adult, there are other pertinent documents as well.

One of these is a self-settled special needs trust, which is funded with the child’s own assets, such as an inheritance, accumulated wealth or a personal injury settlement.

Any type of asset which the disabled adult has the legal right to use without restriction can be placed into a self-settled special needs trust. There are downsides to this type of special needs trust, however, so it is important to consider the following:

• Medicaid must be reimbursed from the self-settled trust for benefits received by the beneficiary, upon the beneficiary’s death;
• A self-settled special needs trust can limit the types of payments made by the trustee;
• A self-settled special needs trust may, in some instances, require an annual payment be made to Medicaid;
• The assets in a self-settled special needs trust will be taxed as though the assets still belong to the beneficiary;
• The beneficiary must be under the age of 65 for a self-settled special needs trust to be established, and
• If the rules of a self-settled special needs trust are not followed to the letter, the beneficiary’s eligibility for SSI or Medicaid could be compromised.

Other aspects of an estate plan which must be contemplated when considering the future of a special needs adult include the following:

• When you are planning for the future of your child as a special needs adult, you may not want to name that child as beneficiary of your retirement plan or retirement account, as this could make them ineligible for government assistance programs. A better choice might be to leave your retirement plan or individual retirement account to another beneficiary, then make an equalizing gift of other assets to the special needs trust.
• If you currently have term life insurance, you might want to purchase a permanent life insurance policy. While this type of policy is more expensive, you can expect this type of policy to more fully provide for your special needs adult child, no matter your age at death. Permanent life insurance does not require you to re-qualify for life insurance once the policy is in force. If you are in deteriorating health, it can become difficult to continue to qualify for a term life policy.
• If your adult child with special needs will require some level of caregiving, you will want to make sure to have a will which has a provision appointing a guardian, as well as a successor guardian in the event of the original guardian’s incapacity or death.
• Many estate planning attorneys will advise clients seeking to ensure the future of an adult child with special needs to have a nonbinding letter or statement of wishes regarding care and custody of the adult child during the interim, before the guardian has taken over the duties. There is usually a period of time before the payment of life insurance proceeds and the appointment of a successor guardian when everything is somewhat “up in the air.” Thus, a nonbinding letter can advise those taking care of the adult with special needs about medications, dietary restrictions, housing arrangements, and any other pertinent details.

While taking care of all of the above issues is important, as noted, a special needs trust is the backbone of any estate plan for parents of an adult child with special needs. Your Virginia estate planning attorney can offer practical short and long-term considerations tailored to your unique situation, and the nature of your adult child’s disability.

There may be others in the family, such as siblings, grandparents, aunts or uncles who want to help provide for the adult special needs child in their own estate plans, therefore the special needs trust could apply to others, in addition to the parents.

The experienced Virginia estate planning attorneys at Melone Hatley. can help parents and relatives of an adult with special needs to ensure that assets will pass to the child, but will not be considered available assets for the purpose of governmental assistance. Contact us today for a consultation.