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Eight Important Considerations When Estate Planning for Special Needs (Part II)

Mother and childThere are unique planning requirements of families with children, grandchildren or other family members (such as parents) with special needs. There are also numerous misconceptions in this area that can result in costly mistakes when planning for special needs beneficiaries.

This is the 2nd installment of two blogs; today and yesterday, on this important topic.  I hope you find it helpful.

Consideration #5: Use great caution in choosing a trustee.  Loved ones or family members can manage the special needs trust while alive and well if they are willing to serve and have proper training and guidance. Once the family member or loved one is no longer able to serve as trustee, they can choose who will serve according to the instructions provided in the trust. Families or loved ones who create a special needs trust may choose a team of advisors and/or a professional trustee to serve. Whomever they choose, it is crucial that the trustee is financially savvy, well-organized and of course, ethical.  The trustee of a special needs trust should understand the trustmaker’s objectives and be qualified to invest the assets in a manner most likely to meet those objectives. 

Consideration #6: Invite others to contribute to the special needs trust.  A key benefit of creating a special needs trust now is that the beneficiary's extended family and friends can make gifts to the trust or remember the trust as they plan their own estates. For example, these family members and friends can name the special needs trust as the beneficiary of their own assets in their revocable trust or will, and they can also name the special needs trust as a beneficiary of life insurance or retirement benefits.  Unfortunately, many extended family members may not be aware that a trust exists, or that they could contribute money to the special needs trust now or as an inheritance later.  Creating a special needs trust now allows others, such as grandparents and other family members, to name the trust as the beneficiary of their own estate planning. 

Consideration #7: Relying on siblings to use their money for the benefit of a special needs child can have serious adverse effects.  Many family members rely on their other children to provide, from their own inheritances, for a child with special needs. This can be a temporary solution for a brief time, such as during a brief incapacity if their other children are financially secure and have money to spare. However, it is not a solution that will protect a child with special needs after the death of the parents or when siblings have their own expenses and financial priorities.

What if an inheriting sibling divorces or loses a lawsuit? His or her spouse (or a judgment creditor) may be entitled to half of it and will likely not care for the child with special needs. What if the sibling dies or becomes incapacitated while the child with special needs is still living? Will his or her heirs care for the child with special needs as thoughtfully and completely as the sibling did?

Siblings of a child with special needs often feel a great responsibility for that child and have felt so all of their lives. When parents provide clear instructions and a helpful structure, they lessen the burden on all their children and support a loving and involved relationship among them.

Relying on siblings to care for a special needs beneficiary is a short-term solution at best. A special needs trust ensures that the assets are available for the special needs beneficiary (and not the former spouse or judgment creditor of a sibling) in a manner intended by the parents. 

Bonus Consideration:  Stay up to date on changes in the law.  The rules applicable to special needs trusts are constantly changing.  Most recently, the Social Security Administration changed the rules on special needs trusts that are created using assets of the special needs beneficiary (called a “self-settled special needs trust”).  The new Social Security regulations require certain provisions to be present in any self-settled trust drafted after January 1, 2000 that allows for early termination of the trust (termination prior to the death of the special needs beneficiary).  

If these required provisions are not in the trust, the special needs beneficiary could lose SSI or Medicaid eligibility.  The new regulations go into effect October 1, 2010.   Please contact us if you have questions about the new regulations or if you would like more information on the changes. 

Conclusion.  Planning for a special needs beneficiary requires particular care and knowledge on the part of the planning team.  A properly drafted and funded special needs trust can ensure that special needs beneficiary has sufficient assets to care for him or her, in a manner intended by loved ones, throughout the beneficiary's lifetime.

You can learn more about this topic as well as other strategies on our website under the tab entitled: special needs planning in Virginia. Be sure you also sign up for our complimentary e-newsletter so that you may be informed of all the latest issues that could affect you, your loved ones and your estate planning.  However, proper estate planning is not a do-it-yourself project.  Why not call us for a complimentary consultation at 757-259-0707.

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