Personal Finance

Estate Planning for the Family of a Child with Special Needs

Parents of children with special needs are faced with unique considerations and choices when developing their estate plan.

How can you provide for all of your loved ones without jeopardizing the ability of the child with special needs to qualify for means-tested government benefits, including Medicaid and Supplemental Security Income (SSI)? How do you ensure that assets are available at the time of your death to care for the child? And who should supervise and manage these assets to ensure your child is properly cared for?

An estate plan can help ensure your child’s welfare.

The goal of many estate plans when considering a child with special needs is to ensure that your estate is utilized and managed for the child’s welfare, while still maintaining their eligibility for public assistance programs—especially SSI and Medicaid, which require the child to meet strict financial eligibility criteria. Qualifying for these programs allows a child with special needs to be eligible for assisted housing, transportation, and employment assistance, attendant aides, and other valuable benefits. Medicaid, in particular, also allows the child to qualify for necessary health care programs, along with many other public assistance programs.

Estate plan options for a child with special needs. 

When creating an estate plan for a child with special needs, families typically have four options to consider:

  1. Leave an inheritance to the child directly. This option would almost certainly disqualify the child with special needs from public assistance programs and, depending on the nature of the individual’s disability, could place unreasonable expectations for money management on them. Generally, there are options preferable to this one.
  2. Disinherit the child with special needs. While this would likely preserve their qualifications for Medicaid and SSI, it would provide no safety net in the event that public funding were to cease or otherwise be restricted.
  3. Direct the estate to siblings of the child with special needs. In this way, brothers and sisters of the child with special needs would manage the estate for the benefit of their sibling. However, this option potentially opens the assets to creditors’ claims against the siblings, not to mention the potential conflict that may arise among brothers and sisters who may consider the assets theirs, rather than for the benefit of their sibling.
  4. Establish a Special Needs Trust. By using a properly drafted, funded, and administered Special Needs Trust, the child with special needs will continue to qualify for public assistance programs, specifically Medicaid and SSI. There are strict limits placed on the trustee’s ability to give money to the child— and because the child with special needs cannot access the funds directly, the trustee can ensure proper money management for the benefit of the child after the parents’ death. See the next section for more details about this type of trust.

How do I set up a Special Needs Trust?

Creating the trust. A Special Needs Trust can be created at the time of the parents’ death by incorporating a trust within their Last Will and Testament. This is known as a testamentary trust. It is often preferable, however, to utilize a Living Trust—which is created and funded during the parents’ lifetime in order to avoid probate, potentially engage a co-trustee, and offer a vehicle to receive funding from other family members, including grandparents. It is important to coordinate estate plans within families that contain an individual with special needs, so that well-meaning relatives don’t unintentionally leave assets to individuals with special needs— inadvertently disqualifying them from public benefits in the process.

Choosing a trustee. Selecting a trustee for your Special Needs Trust is an important decision, as this individual or institution will be responsible for administering the trust. While your first instinct may be to name a family member as trustee, given the complex and potentially emotional nature of administering a Special Needs Trust, this is one area where it is often preferable to select an independent, unrelated person to serve as trustee. This can include more distant relatives, your attorney, non-profit organizations specializing in Special Needs Trusts, or a professional corporate trustee. Selecting the right trustee can be a complicated affair, and your Janney Financial Advisor can help point you in the right direction.

If you or someone you know has a child with special needs, speak to your Janney Financial Advisor about scheduling a consultation with a member of Janney’s Financial Planning team. We can help you understand the options available to you and your family, guide you through the often-complicated maze of rules and choices, and work with your CPA and attorney to create an effective estate plan.

Martin Schamis, CFP
Head of Wealth Planning

Martin Schamis is Head of Wealth Planning in the firm’s Wealth Management division. In this role, Martin is responsible for the strategic direction of the Planning Solutions Group that supports more than 740 Financial Advisors who advise Janney’s retail client base.

Martin joined Janney from The Vanguard Group, where he spent the majority of his 11-year tenure as Senior Manager of Financial Planning and Advice Services. During his time there, he helped launch several successful financial planning initiatives, including redesigning Vanguard’s comprehensive financial planning offering as well as developing a solution connecting clients with Vanguard’s CFP® professionals for situational advice. Prior to Vanguard, Martin worked as a financial advisor for Morgan Stanley. He is a Certified Financial Planner® professional and holds FINRA Series 7, 66, and 24 licenses. Martin graduated with a Bachelor’s degree in Physics and Art from the University of Delaware and received an MBA in Finance from St. Joseph’s University.

This is for informative purposes only and in no event should be construed as a representation by us or as an offer to sell, or solicitation of an offer to buy, any securities. The factual information given herein is taken from sources that we believe to be reliable, but is not guaranteed by us as to accuracy or completeness. Opinions expressed are subject to change without notice and do not take into account the particular investment objectives, financial situation, or needs of individual investors. Employees of Janney Montgomery Scott LLC or its affiliates may, at times, release written or oral commentary, technical analysis, or trading strategies that differ from the opinions expressed within.

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