Estate Planning for Special Needs Children

old man and young man with downs syndrome smile at each other

We always want the best for our children; making sure they have the right foundation before heading off on their own life’s journey. But if you have a special needs child, they likely will require a lifetime of assistance – depending on you for their care. This is where an estate plan, crafted especially for your special needs child, is essential to ensure they will always be cared for, even if something happens to you. 

Preparing an Estate Plan

When it comes to estate planning for families with special needs children, some important and even tough decisions need to be made. You need to prepare now for your child’s future. 

Some things to consider before creating your estate plan:

  • Guardian/Conservatorship – Who would you want to serve as the guardian or conservator of your child if you die or become disabled? 
  • Monetary Benefits – Does your child receive SSI (Supplemental Security Income), Medicaid, or other public benefits? If so, caution must be exercised if they are to inherit any assets from you. For example, if you named your child as the beneficiary of your life insurance, that payout could nullify those benefits.
  • Special Needs Beneficiaries – As mentioned above, naming your special needs child as a beneficiary in your Will could have dire consequences. A well-intentioned inheritance to your child from you or grandparents could disqualify or reduce any state or federal assistance your child receives. Additionally, the government could claim the inheritance as reimbursement for public-funded services. 

Related Article: Estate Planning Basics: 7-Step Checklist

Creating an Estate Plan for Your Special Needs Child

No one wants to think about not being around for their child. If you become disabled or pass away, you need a plan in place so your son or daughter will continue to receive the care they need. Estate planning allows you to spell out legal-binding instructions for your child’s care and well-being.

The two most important things you want for your special needs child are: Long-term financial resources and someone to care for them. An estate plan can make those happen. A Trust, a Will, a Power of Attorney, and a Health Care Proxy are your key special needs estate planning documents.

1) Special Needs Trust – Similar to other Trusts that hold assets for beneficiaries, a Special Needs Trust (also known as a Supplement Needs Trust) is tailored for mentally and physically disabled children – minor or adult. It provides long-term income to your child without impacting their eligibility to continue receiving public disability support. 

Since state and federal financial assistance is based on income levels, proceeds your child receives from this Trust are not counted toward any government benefits. The Trust can give you peace of mind knowing your child will continue to be eligible for public programs while receiving income to help pay for certain expenses such as computers, education, and clothing.  

There are two types of Special Needs Trusts: Self-Settled and Third-Party. 

  • Self-Settled Trust – Created by the individual with special needs, a guardian, parents, or a court, a self-settled is usually funded by a personal injury settlement, or an inheritance received by your child. The beneficiary must be the special needs person and age 65 or younger. Any funds left in the Trust after the beneficiary’s death must be paid to the state Medicaid program as reimbursement for services the agency provided.
  • Third-Party Trust – This Trust is usually established by the parents of a special needs child and can hold an inheritance from you or a grandparent. The Trust does not allow the beneficiary to have any ownership of the assets which can be property, bank accounts, insurance policies, or investments. A Trustee – not the beneficiary – controls the funds. Any gifting or assets must be bequeathed to the Trust, not to the special needs child.

Unlike the Self-Settled Trust, the Third-Party Trust has no age limit for your child, and it is not required to use any leftover funds to reimburse government benefits after the death of the beneficiary. A provision should be included to specify the assets are not to be used for medical expenses, food, or housing since government assistance covers these.

Related Article: Why You Should Consider a Trust

Both Trusts require the appointment of a Trustee to oversee and distribute the assets in accordance with the instructions provided in the document. Directives should be specific as to how and when the funds are distributed by the Trustee. A Special Needs Trust is irrevocable, meaning that once it is created, it cannot be changed or modified. 

2) Will – As we mentioned, you don’t want to leave any assets to your child in your Will if they are receiving public financial help. However, a Last Will and Testament is essential for you to name a guardian to care for your child – whether they are a minor or an adult. Should both you and your spouse die, or if you are a single parent and pass, the named guardian in your Will has legal authority to take custody of your child. 

Related: Video: Estate Planning and Caregiving with Gentreo

If you die without a Will, the court will step in and appoint a guardian. By having a Will, you have full control over who would serve as your child’s guardian and avoid any court involvement. 

You can also include a provision in the Will that, upon your passing, a Special Needs Trust would automatically be established for your child with named assets funding it. However, it is best to have the Trust created while you are living so you have better control of how the Trust is crafted.

3) Power of Attorney – Your special needs child reaches the age of 18. Now what? In the eyes of the law, your child is an adult and depending on their disability, may be capable of living on their own and making their own decisions. But what if your child is not able to manage his or her affairs?

Related Article: Does My Child Need a Power of Attorney?

If your child is capable of decision-making, they can appoint you as their Power of Attorney. This allows you to handle their legal and financial matters if they cannot. Should your child be unable to understand the Power of Attorney document, you may have to seek conservatorship through the courts.

4) Health Care Proxy – As with the Power of Attorney, if your child has capacity, he or she can appoint you as their Health Care Proxy – also known as a Power of Attorney for Healthcare – to make their health care decisions should they become unable to do so on their own. Similar to the power of attorney for finances, if your child cannot complete a medical power of attorney, you will most likely have to seek guardianship through the courts.

Related Article: Does My Child Really Need a Health Care Proxy?

Estate Planning Protects Everyone

An estate plan protects both you and your loved ones. While you need legal documents specifically for your special needs child, you also need a plan for yourself. An estate plan allows your wishes and decisions to be honored if something happens to you.

We can help you create an estate plan just for your special needs child’s circumstances. Our coaches can walk you through the process. And we have licensed, expert, estate planning attorneys in all 50 states so you can receive state-specific legal information. 

Related Article: Why 1:1 Coaching is so Important When Creating Your Will Online

We also have a secure, easily accessible place in our Digital Family Vault to store your documents. After you create your plan, we don’t go away. We are always with you as your life changes.


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