Legal Planning & Special Needs Trusts
Proper planning for your child’s future requires documentation, and all of these require a lawyer.
- Last Will and Testament
Describes how you want your estate distributed and appoints a guardian for your child. In some cases it should not distribute assets to a child with special needs, which may jeopardize any aid they receive.
- Letter of Intent
Describes how you want your child to be cared for and expectations for their future. It is not legally binding but is rather a pathway for a caregiver to follow. It's also called a Memorandum of Intent or Life Plan.
- Durable Power of Attorney
Appoints an adult to make medical, financial and other decisions for someone else without the involvement of a court.
- Special Needs Trust
Appoints a trustee to manage money and assets for a person with a disability in lieu of a court-appointed guardian. Life insurance can be used to fund the trust and improve the life of the child when parents pass away.
- ABLE Accounts
ABLE accounts are tax-advantaged savings program designed for eligible people with disabilities. You can read more about ABLE Accounts here.
Special Needs Trusts
Providing for your child with autism’s future requires careful planning. In order to qualify for Medicaid and other benefit programs, special-needs children may not have more than about $2,000 in their own name. Parents and well-meaning relatives who give a disabled child money -- either now or in their wills -- could make the child ineligible for some benefits, and he or she would need to spend down the money and re-apply. See OBRA law below.
Some parents think they can solve this problem by disinheriting their disabled child and giving the money to a sibling or family member who promises to provide the child's support. But such a solution puts enormous stress on the sibling and still doesn't guarantee that the child's needs will be met.
A better solution is a special-needs trust with an OBRA account, which acts as a receptacle to accept money earmarked for the child and may be used to pay for the amenities that government programs don't provide. The trust can see that children have the opportunity to travel to visit relatives, celebrate birthdays and holidays, and enjoy some measure of entertainment.
What is OBRA?
An OBRA (The Omnibus Budget Reconciliation Act of 1993) account can be used to deposit any wages or gifts so that the child doesn't cross the asset limit for Medicaid eligibility.
You can designate a guardian for your child in your will and name the special-needs trust as the beneficiary of your life-insurance policies and retirement plans. You can instruct relatives to do the same and write a letter of intent explaining the extracurricular activities, such as swimming and horseback riding, that you'd like the trust to pay for.
Your SNT lawyer may recommend naming co-trustees -- a family member or friend plus a professional trustee, such as a bank or a lawyer, who can choose the investments and manage the taxes. It's important to pick trustees who will be able to manage the trust for decades (and keep that time frame in mind when designating a guardian, too.)
Many families also boost their life-insurance coverage, especially if they want to leave money to other children as well.
Children with autism can live to normal life expectancy these so you need to look at a 70 or 80 year situation financially.
Because the child could be dependent for more than 20 or 30 years, this is one instance in which a cash-value policy trumps term life insurance. You'll need to buy coverage for both parents, including the primary caregiver. But you can save money by putting most of the money in a second-to-die policy, whose proceeds will be paid directly into the special-needs trust after both parents die. A universal-life policy that maximizes the death benefit and minimizes the cash value is important. It's funding the maximum at death that you're concerned about.
The most common question people ask an attorney is, ‘How much will it cost?’ The better question is: ‘How many trusts have you actually seen under management?’ A Special Needs Trust is approximately $2000 to set up.
Please note: the information in this article is not intended to constitute legal advice applicable to specific factual situations.