As discussed by the author in Wealth Management, estate planning with special needs family members should be treated, well, special.
If you have a child with special needs, as I do, you face a special set of financial considerations. Above all, you want to ensure that the choices you make are in your child’s best interest both while you’re here to care for them and after you’re gone, and that these choices don’t unintentionally create other obstacles.
As it stands, having $2,000 or more in assets makes a person ineligible for certain federal benefits, like Medicaid, Social Security and some food and housing programs. So, despite your best intentions, setting up a savings account or leaving a large inheritance for your child’s ongoing care could disqualify him from critical government assistance.
Generally speaking, no matter how much you leave that person with special needs, it likely will be greatly worth less than all the benefits they may have during their lifetime from these federal programs.
The author of the article recommends establishing a Special Needs Trust and amending your Last Will to transfer the respective monies into the Special Needs Trust.
As a next step, it’s very important for parents to draft a will and, again, to name the special needs trust rather than the child as the beneficiary. This documentation is so important, because if something should happen to you and your assets go to a probate court, a judge could award them to your child and unwittingly interfere with his eligibility for life-sustaining benefits. This concept should extend to other assets and investments, like 401(k)s, IRAs and life insurance.
Let’s say that again: This concept (of excluding the special needs child as a direct beneficiary)should extend to other assets and investments, like 401(k)s, IRAs and life insurance.
Another savings tool has emerged in recent years to provide additional financial opportunities and flexibility for special needs families. The 2014 Achieving a Better Life Experience Act opened the door for tax-free ABLE accounts, which, similar to 529 college savings plans, allow Americans with disabilities to save and invest for the future without becoming ineligible for government benefits. The money can be withdrawn for a range of qualified expenses, from education to healthcare, and this option is open to anyone who is diagnosed with a disability before the age of 26. While these plans are only administered by certain U.S. states at the moment, many states offer plans that are open to all U.S. citizens.