Estate Planning for Parents of Persons With Developmental and Other Severe Chronic Disabilities

August 8th, 2012 | written by Nancy Larson

Part I

From birth through age 18, the family learns to accept the disability and work with it to help the child function to his/her highest capacity.  The family also “learns the system” by learning what programs and protections are available for the child.  This involves learning the culture of disability through support systems, advocacy, access, and schools.

Facts of Life

Who will provide for a disabled child as the child becomes an adult
and the parents age and eventually die?

Portrait of beautiful young girlsPersons with disabilities are living longer now due to medical and societal advancements.  To live a full life, public benefits are often necessary, but there is no guarantee that public benefits will provide adequate resources over the disabled person’s lifetime.  Further, there is no guarantee that public agencies will provide services and advocacy over the disabled person’s lifetime.

Upon attaining age 18, a child becomes an adult for all legal purposes.  The child becomes eligible for public benefits based upon evidence of disability and the child’s low income and resources as the parents’ income and resources are no longer considered in determining the child’s eligibility.  Parental decision-making authority ends at age 18, and a guardianship may be necessary.

In providing for persons with disabilities, parents must be aware of several common pitfalls that may disqualify their child from receiving benefits upon attaining 18 years of age. Beware of the following pitfalls:

A. Uniform Gifts to Minors Act (UBMA) Accounts

  • Upon turning 18, the child takes control of the account, and the child may then use the money for purposes other than education — regardless of the custodian’s wishes.
  • UGMA accounts are considered available resources for purpose of SSI eligibility.

B. Unstructured Beneficiary Designations

  • Naming an SSI or Medicaid recipient as the beneficiary of a retirement plan, insurance policy, or annuity, will cause a reduction or elimination of public benefits.

C. No Planning at All

  • Dying without a will or a trust will usually leave all or a portion of the estate to the decedent’s children.
  • Any child receiving SSI or Medicaid will lose eligibility until the inheritance is either spent down, converted to an exempt resource, or placed in a Special Needs Trust.

What should a parent do?

Providing for a child with disabilities with a Special Needs Trust (SNT) will preserve the disabled person’s eligibility for needs-based governmental benefits while providing assets which may be used to supplement public benefits in order to improve the disabled person’s quality of life.

A SNT is drafted specifically to give discretion to the trustee so trust assets are not considered to be “countable resources” in determining the disabled person’s eligibility for public benefits based on need.

The Social Security Administration describes a discretionary trust as “a trust in which the trustee has full discretion as to the time, purpose and amount of the distributions.”  If the beneficiary has no discretion over the distributions, the trust is not counted in determining SSI eligibility.  Assets in a SNT will not count as a resource for public benefits purposes.  The assets in the SNT may be used to supplement the beneficiary’s needs not covered by public benefits without a reduction or elimination of those public benefits.

The following are examples of permissible SNT expenditures:  Entertainment / education / travel expenses / newspaper and magazine subscriptions / personal care services / In-home care services / non-covered medical expenses / vacations / companions.

Does every person with a disability need to have a trust? …. Not necessarily.

A SNT trust is appropriate if it helps to achieve greater independence or reliable asset management, but a trust by its nature means a loss of control over the funds by the disabled beneficiary.

Special Needs Trusts vs. Support Trusts

If needs-based public benefits are either not needed or not anticipated by the disabled beneficiary, there is no need to establish a SNT.  If public benefits are not an issue, it may be appropriate to establish a support trust to provide financial oversight and administration for the disabled person’s behalf.

Each family, each person, is unique and requires and deserves specific planning tailored to best meet the needs of their situation.

Submitted to BND Adult Lifestyle:  4/2/12