Life comes at you fast, and before it ends, it is best to have your affairs in order. Dark, we know! But important nonetheless. In the event of your incapacitation or death, an estate plan anticipates and predetermines how your assets — like your home, bank accounts, life insurance, car, and more — disperse to your Successor Trustee and/or beneficiaries. Whether it’s the unthinkable or the inevitable, you should do everything in your power to prepare your estate and what you leave behind for your loved ones. We have already talked about why you need an estate plan. And for families with a special needs child or adult, a Special Needs Trust eastate plan is critical. At McCart and Tesmer, we have a wealth of experience in estate planning and can offer extra guidance for families with special needs children.
So, what makes traditional estate planning so different from estate planning with a child that has special needs? Pretty much everything. Special needs children and adults often have governmental benefits like SSI or Medicare. Not everybody knows that these benefits could be put at risk if the special needs child received a traditional inheritance. More on that later. If your estate plan is not created by someone who has experience specifically with special needs, you run the risk of them becoming ineligible for these government benefits. There are many options to choose from to avoid this, and at McCart & Tesmer, we recommend that you create a Special Needs Trust. Let’s break down what that is, why it is necessary, and what options fall under Special Needs Trust.
What is a Special Needs Trust?
First off, what’s a traditional trust? A trust is created by a person and their lawyer to transfer parts or all of their assets to their trustee(s). It can protect whatever you choose to leave the trustees from creditors, taxation and probate. Trusts are often used for people who are underaged or mentally impaired in a way that could impact their finances. Once a beneficiary is deemed competent they can possess the trust without supervision.
A Special Needs Trust is a type of trust designed to help continue the care of a disabled person once a person normally entrusted with that care passes or becomes incapacitated. Not only can it offer the person with disabilities supplemental income, but it can set up their medical care needs as well. Make sure that there are people who know where your legal documents are before you pass or become incapacitated, otherwise we did all the hard work of planning without the rewards.
Extra provisions that make a Special Needs Trust different include selecting your child’s guardian or conservator beyond the age of 18, if needed. There should be a Trustee appointed to handle money for your special needs beneficiary. It is good practice to have a shortlist of people who could step in as conservator or guardian if your first choice also becomes incapacitated or passes. The Trustee can provide the beneficiary money for a multitude of everyday costs, but the Trustee must consider the beneficiary’s disbursements on a case-by-case basis. The reasons for dispersal are fairly flexible. It could be for their pet dog or a haircut — whatever they need. However, if a Trustee mismanages dispersals, by not documenting them properly or by giving the beneficiary more than the limit set for allowable earnings, they can put the beneficiary’s benefits at risk.
Why do I need a Special Needs Trust?
Depending on the severity of the person’s disability, they truly may not be able to take care of themselves. They will need someone to make medical choices, financial choices and day-to-day choices for them. If you chose to cut out your special needs child and trust your able-bodied child to “do the right thing”, there is always a chance that child would fail to honor your request.
In the state of Florida, if a disabled person receiving Medicaid has countable assets that exceed the earning limit they can lose their eligibility. Medical insurance is not a safety net for disabled people, it is a lifeline. Putting this at risk directly puts your special needs child at risk. Luckily, assets in a Special Needs Trust are not included in this calculation.
Not to mention, government assistance is not guaranteed. The programs your child relies upon could be defunded or altogether eliminated. If there is not something in place in the event of any of these situations, your child is left vulnerable. However, if you have set up a Special Needs Trust your child will have something to fall back on. And that’s where we come in!
What are my options?
First-Party Supplemental Needs Trust– This is a discretionary trust that is funded with the assets of a supplemental needs beneficiary. Oftentimes the disabled individual’s funds are used for their own benefit but are placed in the trust to pay for future expenses without interfering with their needs-based government services.
Third-Party Supplemental Needs Trust- This discretionary trust provides stability for people who cannot live independently or earn their own income. The main difference is that a third-party SNT is funded by a family member or guardian for the benefit of a disabled person.
Third-party trusts have several benefits including no limitations on the number of assets in the trust.
Special Needs Pooled Trust– These trusts are run by nonprofit organizations that will administer supplemental income to the beneficiary. Pooled trusts apply fees, offer different services and contracts in different capacities.
Finding the right Special Needs Trust for you and your special needs child requires a legal expert who specializes in estate planning. At Mccart & Tesmer, we know that an estate plan can save your family a lot of pain, time, and stress. We have seen time and time again what happens when plans are not in place following the death of a loved one, and trust us — it is not pretty. Let the professionals at McCart & Tesmer do what we do best and get your plans in order.