Well-meaning parents often draft wills leaving large sums to their disabled children, or take out life insurance policies to benefit their special needs child. While this would ordinarily be a wise course of action, for those with a disabled child, passing on one’s assets through these traditional methods can actually have negative consequences on your child.
One of the main concerns in creating an estate plan for disabled children is the effect of inheritance on the child’s eligibility for special needs benefits, which are generally comprised of Supplemental Security Income, or SSI, and Medicaid. Receipt of these benefits is contingent upon your child’s assets, making it imperative that you craft an estate plan that will convey your assets to your disabled child, but not render them ineligible for vital government assistance programs.
At Stern Law, PLLC, we have advocated on behalf of disabled children for the past 30 years. During this time, we have seen firsthand the dangers of poor or non-existent estate planning. Please call (800) 462-5772 to start the planning process with a qualified estate planning attorney.
Is a special needs trust necessary for my child?
There are two essential considerations to analyze in determining whether a special needs trust is right for your disabled child. You must first look to discern if your child is eligible or may become eligible for SSI or Medicaid. SSI provides supplemental cash assistance for disabled children or adults. The maximum federal benefit changes yearly, and is currently set at $710 a month for an individual. Some states will additionally supplement the Federal SSI benefit. You can find more information on SSI eligibility on our website and at SSA.gov.
The Social Security Administration defines a disability for children under the age of 18 as follows:
- The child has a physical or mental condition that very seriously limits his or her activities.
- The condition has lasted or is expected to last at least one year or result in death.
For your adult child over the age of 18, the Social Security Administration’s definition of disability shifts to:
- The individual is unable to do any substantial work due to a medical condition.
- The medical condition has lasted or is expected to last more than one year or result in death.
A state agency will make the ultimate determination as to whether your minor or adult child qualifies as disabled under the agency’s definition. The child must then meet income eligibility requirements. The agency will look at all monies earned from work, cash, bank accounts, land, vehicles, personal property, life insurance, and anything else that could be converted to cash. The agency will exclude $2,000 worth of assets per individual.
Medicaid provides healthcare coverage for qualified disabled children and adults. Most individuals who receive SSI benefits will also be eligible for Medicaid. Like SSI benefits, receipt of Medicaid is contingent upon income qualifiers and assets held by your disabled child will cause a denial of his or her application or cessation of coverage. More information concerning applying for Medicaid can be found at Medicaid.gov.
It is important to remember for income qualification purposes, government agencies will use a five year look-back period. Therefore, assets which belonged to the disabled child but were later transferred to another party will count as income. However, those assets placed in a special needs trust are not subject to the look-back period.
If you have determined your child is or will likely be eligible for special needs benefits such as SSI or Medicaid, you should then turn to your own finances. Often, wealthy families feel there is no need for them to set up a special needs trust because the funds they leave to their child will provide sufficient care. While in some scenarios this may be accurate, one should carefully consider the true costs of a lifetime of care. Some experts estimate that caring for a severely disabled child over a lifetime will cost between $5 and $10 million, or more With soaring healthcare costs, increased cost of living, and the likelihood that with modern medicine your disabled child may live a long life, it seems a risky prospect to forego government benefits that exist to provide for disabled children like your own. The choice is yours to make, but an estate planning attorney with experience developing estate plans for disabled children can provide invaluable advice as to the necessity of a special needs trust.
It is every parent’s desire to ensure their children have the financial resources necessary to succeed even after their death. This concern is particularly acute for those with disabled children, who may be financially dependent upon their parents for far longer than the average child, and sometimes even for life. If you need help getting started with a special needs trust, please call Stern Law, PLLC at (800) 462-5772 today.