(9.16.24) "Special needs planning encompasses a range of considerations, including special needs trusts, care management, advocacy to uphold educational or civil rights, and access to public benefits such as Supplemental Security Income (SSI) and Medicaid," stated RJ Connelly III, a certified elder law Attorney and professional fiduciary. "It is also critical to recognize that well-intentioned family members might inadvertently jeopardize a special needs child's eligibility for future government benefits. Such errors can have devastating consequences. I cannot emphasize the significance of seeking professional advice to safeguard the child's essential support and understanding the special needs trust. We will explore this more in today's blog."
Sara's Story
Overwhelming emotional challenges and health struggles have marked Sara's journey. In her mid-thirties, she was diagnosed with multiple sclerosis (MS), drastically altering her life. This diagnosis led to a lost managerial position, the pressure to sell her home, and the end of a long-term relationship. "The financial troubles were expected as I was the main earner, but the breakup caught me off guard," Sara shared. "I'm not sure if it was the MS or if we simply drifted apart, but the result was that I found myself alone, and the stress triggered a severe MS flare-up, leaving me in need of extensive help."
Multiple sclerosis is a debilitating condition that affects the brain and spinal cord. It involves the body's immune system attacking the protective sheath surrounding nerve fibers, disrupting communication between the brain and the body. This can lead to permanent damage and severe nerve deterioration. While some individuals may lose the ability to walk, others may experience periods of remission without new symptoms. Unfortunately, there is no cure for MS, and treatment focuses on managing symptoms as they arise.
MS took away Sara's mobility, making her dependent on daily assistance from an external provider. With her father already deceased and her mother recently diagnosed with a serious heart condition, Sara felt the weight of her circumstances. Her parents had set aside a significant sum of money and property assets for her in their will. However, the cost of the required care left Sara feeling overwhelmed.
"I'm grateful for what my parents put aside for me, but I had no idea that healthcare would be so costly and that my insurance wouldn't cover everything. As a young adult, by today's standards, any inheritance would be depleted within a few years. Then, I sought guidance from a healthcare advocate, who directed me to Connelly Law Offices. That's when I learned about the Special Needs Trust and Medicaid Planning," Sara revealed.
The Special Needs Trust (SNT) allows a parent or guardian of a disabled individual to establish a trust for their long-term care. Using this trust tool, the funds within it do not affect the individual's eligibility for essential care and support, providing crucial assistance for those with disabilities.
Attorney Connelly reflected on a poignant moment when Sara and her mother joined him to work on drafting the Trust. Together, they delved deep into the intricate possibilities within the Trust guidelines. As they finalized the document, emotions ran high. Both Sara and her mother shed tears - Sara, realizing that she could maintain her independence for a longer duration without losing her personal care attendant, and her mother, finding solace in the knowledge that her daughter would be cared for even after she was no longer able to do so herself.
Ten Tips Regarding a Special Needs Trust
Attorney Connelly outlined ten pivotal considerations for developing a Special Needs Trust (SNT). "Deliberate future planning for individuals with special needs stands as one of the most crucial responsibilities in safeguarding their quality of life," highlighted Attorney Connelly. "The forthcoming insights are designed to integrate seamlessly into a comprehensive planning process, effectively addressing the myriad challenges faced by special needs family members without jeopardizing eligibility for government programs or the interests of other beneficiaries in your estate plan." Let's take a closer look.
Carefully Review How Assets Are Divided - In matters of inheritance, it is important to consider the individual needs of loved ones and allocate resources accordingly. For instance, a child with special needs may require greater support to sustain a quality of life. It is imperative to communicate this rationale to other children who do not have similar needs, ensuring clarity and understanding regarding any differences in inheritance distribution.
Do Not Disinherit a Special Needs Child - The decision to disinherit a special needs child can safeguard their eligibility for government benefits such as Supplemental Security Income (SSI), Medicaid, and Section 8 housing, as these programs enforce strict income and asset limitations. However, while this may appear as a straightforward solution, it is necessary to consider alternative options. Establishing a more intricate legal structure, such as the special needs trust, can fulfill specific discretionary spending requirements without impeding public benefits programs. Our firm is equipped to offer viable options in such scenarios and aid in crafting a plan that aligns with your unique needs and circumstances.
Choose the Proper Trustee - The trustee must possess "sole and absolute" discretion, a standard legal requirement when assessing beneficiary eligibility for SSI or Medicaid. While designating an adult sibling as a successor trustee may initially appear intuitive, it could potentially create conflicts that detrimentally impact the future of your special needs child. Other viable options include appointing an attorney or financial institution as a professional trustee or co-trustee, empowering the trustee to delegate specific tasks to a professional representative to acquire additional expertise in necessary areas, and, if you choose to name a family member, establishing a Trust advisor to guide investment decisions. This approach aims to maximize the resources within the Trust. Additionally, it can be considered to appoint a trust protector with the authority to dismiss the trustee for self-serving conduct and replace them with a corporate trustee. These are factors we will collectively explore in the development of the SNT.
Understand the Rules Both Local and Federal - When considering the allocation of taxes and expenses among heirs, it is important to address the creation of a special needs trust either during your lifetime or as part of your estate planning. Specify whether your estate taxes apply to the trust, will be charged against the trust, or will be allocated among the remaining shares. Requiring a special needs trust to cover some of your estate taxes can diminish the funds available to support your loved one with special needs. It is crucial to seek guidance from a professional who understands these trust structures and knows the relevant state regulations.
What if You are Incapacitated - Incorporate a provision into the durable financial power of attorney that grants your chosen agent the authority to make non-support, discretionary distributions for the benefit of your special needs child. This provision should enable the agent to establish and fund a trust for the child. Additionally, consider authorizing the agent to establish a "sole benefit trust" for your child in the event of your potential need for nursing home care. Establishing this trust may aid in maintaining the parent's eligibility for Medicaid while safeguarding assets held in trust for the child.
Carefully Review Beneficiaries and Asset Titling - It is vital to take meticulous measures to prevent your assets from directly transferring to your special needs child, potentially causing them to lose eligibility for essential government benefits.
Funding a Special Needs Trust with Life Insurance - A second-to-die insurance policy is designed to pay out after both parents pass away. This type of policy is often utilized when a special needs trust is designated as the beneficiary. Seeking guidance from Connelly Law Offices is advised before procuring a life insurance policy. It is essential to ensure that any actions taken do not lead to the loss of government benefits.
Using IRAs and Retirement Plans may not be effective - The various types of financial entities subject to required minimum distributions can harm means-tested governmental benefits. Allocating retirement benefits to fund a special needs trust may result in an immediate and comprehensive income tax obligation, reducing the support available for the child. Engaging in proactive planning and seeking counsel from an attorney knowledgeable about these potential pitfalls is imperative.
Have a Letter of Intent (LOI) - Including such a letter provides an opportunity to personalize aspirations and delineate the child's daily routines and social interactions. This letter of intent is important for a non-parental trustee or new caregiver. It details the child's distinct requirements and preferences, functional capabilities, interests, routines, and essential medical information, outlining how to lead an optimal life. At Connelly Law, we understand that nothing less than this would suffice.
Sit With Others in the Family and Plan - It is important to consider the impact of naming a special needs child as a beneficiary in one's estate, as this could potentially disrupt the child's existing plans. Any inheritances should be directed to a special needs trust to safeguard the means-tested benefits available to the child. Alternatively, a third-party special needs trust (SNT) can be established to efficiently and cost-effectively receive bequests, gifts, and inheritances without needing multiple SNTs. It is imperative to seek guidance from a qualified attorney experienced in such trusts to prevent significant errors.
A Final Word
"There may be the potential necessity of establishing an estate plan for a special needs child," said Attorney Connelly. "Depending on their capacity, a comprehensive plan may include a simple will, durable general power of attorney, a health care directive, and a HIPAA release for medical records. It is crucial to seek the assistance of an experienced and knowledgeable professional when developing a Special Needs Trust (SNT) as even minor errors could have significant financial implications."
Please note that the information provided in this blog is not intended to and should not be construed as legal, financial, or medical advice. The content, materials, and information presented in this blog are solely for general informational purposes and may not be the most up-to-date information available regarding legal, financial, or medical matters. This blog may also contain links to other third-party websites that are included for the convenience of the reader or user. Please note that Connelly Law Offices, Ltd. does not necessarily recommend or endorse the contents of such third-party sites. If you have any particular legal matters, financial concerns, or medical issues, we strongly advise you to consult your attorney, professional fiduciary advisor, or medical provider.
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