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Special needs trusts and planning for disabled children, P.1

Planning for the care of disabled children is an issue that affects many parents. According to data from the U.S. Census Bureau, 12 percent of the population has a severe mental or physical disability. That is not a small amount.

It is important, when considering how to care for such children, to make use of the best tools and strategies estate planning has to offer. One reason is that there is increasing restriction on medical benefits and other supportive services funded through Social Security and Medicaid. Such services are difficult to obtain, and are rather expensive, in the private sector. Another reason is that the demand for government benefits is increasing. Surprisingly, around two-thirds of parents or caregivers do not have a plan as to how the disabled person they take care of will manage when the caregiver is no longer able to care for them. Here we’ll take a brief look at some of the ways special needs trusts can be a valuable tool and work into a number of planning techniques related to disabled children.

One of the ways caregivers and parents can prepare for the future is to make sure that they structure any inheritance to disabled heirs in such a way that they will not be disqualified from receiving government benefits. One of the ways of doing this is to leave another child all their assets in their will. Oftentimes parents will leave the money with the child who lives near the disabled child, and that child will act as the disabled child’s caregiver when the parents are gone. The problem with this approach is that the care-giving child may feel resentment about their duties, even if they initially signed up willingly. In addition, divorce can complicate the picture when the inheritance is commingled between spouses.

A better approach is for parents to give an equal share to each child, but place the disabled child’s share in a special-needs trusts. In terms of funding the trust, a life insurance policy is one stable option.

The great thing about special needs trusts is that parents and caregivers can provide support for their disabled children without putting their ability to qualify for government benefits at risk.

In our next post, we’ll look at two further areas parents can plan for their disabled child.

Source: Wall Street Journal, “Taking Care of Disabled Heirs,” Sep 3, 2011.