Let’s say you have a child with “special needs,” or a sister, brother, mother or other family member. You have not created a special needs trust as part of your own estate plan. Why not?
We know why not. We have heard pretty much all the explanations and excuses. Here are a few, and some thoughts we would like you to consider:
I don’t have enough money to justify a special needs trust. Really? You don’t have $2,000? Because that’s all you have to leave to your child outside a special needs trust to mess with their SSI and Medicaid eligibility.
I can’t afford to pay for the special needs trust. We apologize that it can be expensive to get good legal help. But the cost of preparing a special needs trust for your child is likely to be way, way less than the cost of providing a couple of months of care. That is what is likely to happen if you die without having created a special needs trust, since it will take several months of legal maneuvering to get an alternative plan in place. Even if there is no loss of benefits, the cost of fixing the problem after your death will be several times that of getting a good plan in place now.
I’ve already named my child as beneficiary on my life insurance/retirement account/annuity. Ah, yes – our favorite alternative to good planning. If your child is named directly as beneficiary, you may have avoided probate but complicated the eligibility picture. Their loss of benefits will occur immediately on your death, rather than waiting the month or two it would have taken to get the probate process underway. This just might be the worst plan of all.
It’ll all be found money to my kids. I’ll let them take care of it if I die. We have bad news for you: “if” is not the right word here. That aside, you should understand that a failure to plan means you are stuck with what’s called the law of “intestate succession.” That means that everything will go to some combination of your spouse and children – state rules vary slightly on this subject. If your child on public benefits gets a share of your estate, he will probably need to either (a) spend it all quickly or (b) put it into a “self-settled” special needs trust. That means higher cost to set the trust up, more restrictions on what the money can be used for, and a mandatory provision that the trust pays back Medicaid costs when your child dies. The Medicaid repayment requirement applies to all of the Medicaid benefits your child received during his lifetime, including anything Medicaid has provided before your death. Wouldn’t you like to avoid that result? It’s simple: just see your special needs planning lawyer about a “third-party” special needs trust. The rules are so much more flexible if you plan in advance.
My child gets Social Security Disability Insurance (or Childhood Disability Benefits) and Medicare. Good argument. Because those programs are not sensitive to assets or income, your child might not need a special needs trust as much as a child who received Supplemental Security Income (SSI) and Medicaid. But keep these four things in mind:
- Even someone who gets most of their benefits from SSDI and Medicare might qualify for some Medicaid benefits, like premium assistance and subsidies for deductibles and co-payments. Failure to set up a special needs trust might affect them, even if not as much as another person who receives, say, SSI and Medicaid.
- Future changes in both Medicare and Social Security might result in reduced benefits for someone who has assets or income outside a special needs trust.
- Your child’s living arrangements may change dramatically after your death. Community living arrangements are often paid for or subsidized by Medicaid, and not by Medicare.
- If your child has a disability, it might be that some kind of a trust is needed for management of the inheritance you leave him. If he is unable to manage money himself the alternative is a court-controlled conservatorship (or, in some states, guardianship). That can be expensive and constraining. Good trust planning, with a lawyer who can figure out which benefits rules are relevant, is worth the expense.
I’m young. We agree. And we agree that it’s not too likely that you will die in the next, say, five years (that’s about the useful life of your estate plan, though your special needs trust will probably be fine for longer than that). But “not too likely” is not the same as “it can’t happen.” You cut down your salt and calories because your doctor told you it’d be a good idea – even though your high blood pressure isn’t too likely to kill you in the next five years, either. We’re here to tell you that it’s time to address the need for a special needs trust.
I’m going to disinherit my child who receives public benefits and leave everything to his older brother. That will probably work. “Probably” is the key word here. Is her older brother married? Does he drive a car? Is he independently wealthy? These questions are important because leaving everything to your older child means you are subjecting the entire inheritance to his spouse, creditors, and whims. And have you thought out what will happen if he dies before his sister, leaving your entire inheritance to his wife or kids? Will they feel the same obligation to take care of your vulnerable child that he does?
I’ll get to it. Soon. OK. When?
I don’t like lawyers. We do understand this objection. Some days we’re not too fond of them, either. But they are in a long list of people we’d rather not have to deal with but do: doctors, auto mechanics, veterinarians, pest control people, parking monitors. Some days we think the only other human being we really like is our barista. We understand, though, that if we avoid our doctor when we are sick the result will not be positive. Same for the auto mechanic when our car needs attention. Also for the vet and all the rest. In fact, the only one we probably could avoid altogether is the barista, and we refuse to stay away on principle.
Seriously – lawyers are like other professionals. We listen to your needs, desires and information, and we give you our best advice about what you should do (and how we can help). Most of us really like people. In fact, all of us involved with the Special Needs Alliance really like people – it’s a membership requirement. We want to help, and we have some specialized expertise that we can use to assist you. Give us a chance to show you that is true.
We also know a good barista.