Five Hidden Keys to Special Needs Estate Planning
Apr 01, 2024
When it comes to planning for estate planning for a beneficiary with special needs, there are a lot of myths, half-truths, and misinformation out there. And unfortunately, some of these things just get out there because it worked in one particular circumstance and suddenly everybody's thinking about it. These keys will help people think about this specific kind of planning the right way.
Key 1: Think about the whole estate planning process and don’t just focus on the beneficiary with special needs. Too often, parents will hyper-focus on a special needs trust for a child because that is what they have been told is needed. However, the solution often fits perfectly with doing an over all estate plan that encompasses everything and not just potential inheritances for one child.
Key 2: Have adult children with special needs who are competent to do so execute their own financial and health care powers of attorney. Too often, I hear from various support groups or even banks that the parent of a child with special needs who is turning 18, “oh, just go down to the courthouse and get guardianship.” This is usually with a comment that the process is “easy.” While it may be easy to get the actual guardianship, now there is annual reporting to a judge/clerk, justifying every penny spent, and a whole bunch of unnecessary paperwork… AND your child is now not able to make any decisions on their own. The usual goal is to empower someone to help an adult with special needs, not completely take over and leave that adult legally helpless.
Key 3: You don’t necessarily need a separate special needs trust. This is often a concept that’s difficult to understand, even by attorneys, but one trust can create multiple “subtrusts” that can protect specific beneficiaries. This is what allows a revocable living trust to provide all of the special needs provisions necessary to protect a beneficiary and their public benefits without needing an actual separate document. So if you are the only person (or persons for a couple planning jointly) and no one else is leaving money to your child, then there is probably no need for a separate “freestanding” special needs trust.
Key 4: When someone else does want to gift or leave an inheritance to a beneficiary with special needs, such as a grandparent or other relative, and they don’t want to just leave it to you to take care of that beneficiary, that is when a separate special needs trust is needed. In fact, it is fairly common if grandparents want to provide those $18,000 annual gifts to the kids and grandkids, that they will set up a separate special needs trust for the grandchild who needs it and gift the money to the trust rather than to the child individually.
Key 5: ABLE accounts are terrible for estate planning. Unfortunately, ABLE accounts are getting such praise for the good things they actually do for a beneficiary with special needs that when the state touts the possibility of leaving an inheritance to a special needs beneficiary through their ABLE account, people are taking it seriously. ABLE accounts are good for a person with special needs but who still works to shift some of their income and assets to the ABLE account and then spend that money in ways compliant with the rules on ABLE accounts. However, this is the type of account where the person with special needs should use that money because if they pass on then the leftover money goes to the State. That’s right. So if you leave $500,000 as an inheritance to beneficiary with special needs through their ABLE account and they only spend $100,000 of it before they pass on, then the extra $400,000 goes to the state. With a revocable living trust or separate special needs trust, you can determine who the contingent beneficiaries are… and I very much doubt you would want the State to be your beneficiary.
With these five concepts in mind, planning for a beneficiary with special needs should be much clearer. To learn more about this specific area of estate planning, check out the free webinar at https://specialneedsplanningwebinar.com/.
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