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Protecting the Future for Children with Special Needs

Protecting the Future for Children with Special Needs

June 11, 2021
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Is It Best to Disinherit My Child with Disabilities to Preserve Their Government Benefits?

Being the parent of a child with special needs can be one of the most rewarding experiences in life. But it also comes with its own unique set of challenges. One of those challenges is knowing the best way to plan to provide for the care of your child after you’re gone. Making sure that parents don’t unintentionally disqualify their kids from important government benefits is the key aspect that makes this planning complicated.

Most kids with disabilities will qualify for both income and healthcare benefits from the government when they reach adulthood. However, simply having a verifiable disability isn’t the only qualification to receive these benefits. When applying for these benefits and each month that your child receives these benefits, the government must verify that your child doesn’t have assets that would disqualify them from these benefits. What is the asset limit that disqualifies your child? The limit is $2,000. That’s right, if at any time your child has more than $2,000 in their bank account, they lose their eligibility for the income and healthcare benefits the government provides to those with disabilities.

Many families when learning of this asset limit make the problematic decision to simply disinherit their child with disabilities, thereby ensuring that they don’t receive greater than $2,000 when the parents pass away. Of course, these families don’t intend to leave their children with nothing. Instead, they typically leave an added share of the inheritance to a sibling or other future caregiver with the understanding that the added share is to be used for the care and support of the child with the disability. However, this workaround puts the assets you leave behind at significant risk.

How Disinheriting Your Child Can Put their Future Care at Risk

When assets are left to a sibling or other caregiver, those assets have no protection. The assets are now wholly owned by the person you’ve left them to. Any future divorce, lawsuit, bankruptcy, or other personal financial or relationship crisis can put those assets at risk. For example, if the sibling of your child with disabilities gets divorced, all of their assets are subject to the terms of the divorce decree. Likewise, a future lawsuit, business failure, or other unexpected event could drain away the resources intended to provide care for your child.

Additionally, it’s essential to recognize that relationships change over time. A sibling who is a main caregiver may over time begin to resent the responsibility and/or begin to feel that they deserve greater compensation for being the caregiver. They may begin to spend the assets for things other than for the care and support of their sibling with special needs. In such a case, there would be no legal recourse for anyone who is concerned about your child to pursue to enforce your wishes and instructions.

The Special Needs Trust Is the Better Option

Creating a Special Needs Trust with a qualified Special Needs Estate Planning Attorney protects both your child’s benefit eligibility and the assets you leave behind for their care and support.

A Special Needs Trust is a legally binding arrangement that spells out what assets you want to leave to provide for the needs of your child with special needs and how you want those assets managed and spent. The Trustee you name in the trust has a fiduciary responsibility to manage and distribute the assets in the best interest of your child and according to your instructions. All assets in the Special Needs Trust are excluded from the $2,000 limit, meaning that no matter how much is in the trust, your child can still receive the income and healthcare benefits from the government.

Creating the Special Needs Trust Is the Beginning Not the End

Working with a qualified Special Needs Planning Attorney to create the trust is essential to protecting your child and properly planning for their future. However, that’s not where the planning ends. You also need to work with a qualified Special Needs Adviser to make the financial plan to ensure that you’ll have the assets you need to provide for your own retirement and have assets to leave for the care of your child. The plan needs to work under unexpected circumstances, such as a premature death, and under typical circumstances where you need money for your own retirement and assets to fund the trust. A Special Needs Adviser can help you build a plan with proper balance and protections for you and your child.

If you have questions about special needs planning or would like more information, please contact Special Needs Adviser, John Crowley, at (801) 920-3304 or crowley.john@pennmutual.com

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