And why you may not need to.
Nobody wants to think about estate planning. It’s depressing and complicated. Most families have enough stress worrying about their child’s health, education, and childcare issues that they don’t even consider estate planning. In April 2022, CNBC reported that only 33% of Americans have an established plan for their estate. So, it shouldn’t be a shock that families that have children with disabilities have not planned for their child’s future. It’s not a sexy topic, but it is essential.
2011 Torn Security Blanket Study by MetLife showed that 69% of families say they are concerned with providing for their dependent with special needs, 49% had not named a guardian for their child with a disability, 88% have not set up a trust to preserve eligibility for benefits. Running to different specialists, figuring out the IEP process, and advocating for your child is a full-time job, with no time or extra money to worry about estate planning. I get it. But it is important.
Estate planning is an issue for every family. It becomes more important and complicated, as does almost everything if your child has a disability. According to the National Center for Educational Statistics, in 2020-21, 15% of all public education students received special education services. Centers for Disease Control (CDC) reports that 26% of adults live with a disability. Children with disabilities have access to benefits and services in school, qualify for health care, and receive services through state aid. These services change when they turn 18 and their benefits vary by state. A Special Needs Trust (SNT) is one way to protect your child’s benefits and ensure they continue receiving benefits as adults.
Here is why I created a Special Needs Trust for my daughter.
My daughter, Reagan, has Rett Syndrome. She has severe, multiple impairments and will have them for life. She will need help for the rest of her life. Reagan cannot complete any activities of daily living independently. After my husband and I leave, she will need this level of care. It was important for me to plan for this in a way that protected her future benefits. As an adult, any assets over $2000 could affect her SSI and Medicaid.
- I wanted to supplement her needs without jeopardizing her benefits.
I created her trust when she was 5 years old. I knew she would qualify for SSI and Medicaid when she turned 18. When she applied for SSI, I didn’t want her to have any assets. It just makes the process easier. I knew SSI wouldn’t cover everything I wanted her to have and experience. I wanted her to take vacations, buy gifts for friends, and pay for medical expenses not covered by government benefits. This would help fund her goal of living her life to the fullest. The trust gives her access to money that is not in her name.
2. I wanted to protect her if she inherited money.
Reagan will inherit money from family members when they pass. She cannot have any assets in her name without jeopardizing her benefits. This concern was the primary reason for creating the SNT. Loved ones can name her SNT in their will. It also permits the trust (for her benefit) to own stocks, IRAs, and property. Her trust doesn’t own these, but it could. The SNT can be a beneficiary of a life insurance policy. I wanted to make sure that it would protect her benefits when she inherits money. Without protection, my daughter would need to refuse the inheritance or become ineligible for benefits, including Medicaid insurance. You might think your child won’t inherit enough money, but anything over $2000 affects benefits.
3. I wanted her to have funds when something happens to us.
Reagan has a sister, and as we were planning our estate, it would have felt wrong to us to include her sister, but not Reagan. We did not doubt that her sister would help take care of her, but this permitted us to make our wishes clear and legally binding. The IRS considers an SNT an individual that can inherit. Our planning (creating a family trust) allowed us to specifically provide for both of our children. I set the SNT up to be protected if something happens to me since I started the trust before my husband and I were married. My husband becomes the trustee in this case and then I have multiple family members listed to take over the trust after him. I protect the contents of the trust throughout her whole life.
But, setting up an SNT is expensive.
It can be. Reagan had her trust set up by me in 2005. I believe it was about $500 to set it up and have it registered. The attorney I used specialized in SNT work. When my husband and I changed our will to a family trust, we amended the SNT to change the backup trustees. I registered the trust with the IRS and have a tax id number that can set up bank accounts. I did it online in a few minutes.
Isn’t there something simpler?
Yes. In 2014, The Achieving a Better Life Experience (ABLE) Act went into effect. It permits states to create tax-advantaged savings programs for people with disabilities. They are tax-free savings accounts (income tax-free at the federal level), though most of these individuals don’t pay federal income tax anyway, which will not affect their government benefits. These accounts are not subject to gift tax restrictions and grow tax-free.
ABLE accounts can only receive $16,000 per year and hold up to $100,000 total without affecting SSI benefits. If you don’t expect your child to inherit or receive more than $16,000 in one year, this might be a simpler solution for you.
There are some downsides, though. Any money left over in an ABLE account is first used to reimburse Medicaid, then the remaining funds go to probate before being transferred to an heir. All funds contributed to an ABLE account, including donations from third parties, are subject to Medicaid payback if a state elects to assert the reimbursement claim.
Or try both.
For my family, an SNT was the only way to protect her. Also, an SNT avoids probate and has no payback (for 3rd party funded trusts), and an SNT can pay for anything that benefits the person other than food and shelter without affecting benefits. This was all appealing to me. The good news is you don’t have to choose, you can do both. Your SNT can even contribute to your child’s ABLE account.
Families need to make the best decisions for themselves. If nothing else, please create a will and plans for your child with disabilities, even if they are an adult. For help finding a special needs planning attorney, visit https://specialneedsalliance.org/find-an-attorney.