When it comes time to start doing planning for leaving assets to their children, most parents simply worry about making sure they have valid wills made out and the beneficiary selections made on their life insurance policies. However, parents of children with special needs have to do a bit more work. If you want your child to qualify for resources later in life for his or her support, you must understand how important it is to fill out these forms properly.
For example, you may have a child who is now 20 years old and qualifies for SSI and Medicaid for his health care. What would happen if you had a well meaning grandparent list your child as a direct beneficiary of his life insurance policy? Instead of going to help your child's long term benefit, the funds could disqualify your child from his SSI and health benefits which are income and asset based programs. Even if the funds can be placed into a Special Needs Trust, your child first directly owned the money and the trust will have a payback provision. When your child passes away, any funds remaining in the trust must be used to reimburse the government for Medicaid or SSI benefits paid out during the child's lifetime. As a result, these funds will not pass on to his siblings, or children.
With proper planning, aThird Party Special Needs Trust is often created by the parent or grandparent of a child with special needs but it is never funded directly by the child. The reason this is important is to avoid the payback provision mentioned above. When this trust is executed properly, the funds in the trust are used to supplement your child's living needs and will not replace SSI and Medicaid. However, when your child passes away, the remaining funds do not go to paying back the government. This is because the child never in fact had first hand ownership of the funds. They can be passed down to another beneficiary including siblings of the Special Needs child or his/her children. This type of trust is often called a Supplemental Needs Trust. This feature can be much more desirable for parents with more than one child and can add flexibility to your family's estate plans. The Supplemental Needs Trust will vary state by state according to their laws. For your options, please consult an attorney knowledgeable in disability law in your state.
Make sure extended family is aware of your child's special needs and inform them of the need to make sure assets do not go to her directly. Make a list of accounts and assets that need a beneficiary review such as:
- Wills of supportive family members such as grandparents
- Life insurance policies including supportive family members
- IRAs
- 401(k)s
- Brokerage accounts
- Bank CDs
Please note also that you must not stop at the primary beneficiary box on these forms. If both you and your spouse pass away and the contingent beneficiary box is left blank, you may find you are in same predicament as if you named your child with autism a direct beneficiary. Your children will be next in line to inherit the funds and that includes your child now receiving needs based programs. Those contingent beneficiary boxes are there for a reason. Learn to use them effectively.
