Since 1993 it has been public policy in New York State to allow parents (or other relatives) of a disabled child to establish a trust for their inheritance that would not disqualify them from government benefits, such as Social Security and Medicaid. The reasoning behind this additional need trust is simple – prior to the protection now provided by these trusts, parents would only deprive their disabled children of inheritance rather than see them lose their benefits. Since the state does not get inheritance money, why not let it go to the disabled child for his additional needs, above and beyond what the state provides, such as sundries, clothes, food, vacations, over-the-drugs, medical procedures that improved, reading materials, recreation, better housing, etc.
However, this guardianship offers a trap for the unwary. Since payments to children will generally reduce their SSI payments dollar by dollar, the trustee should be advised to make payments directly to the goods and service provider. Maintaining the benefits of SSI is critical because eligibility for SSI determines eligibility for Medicaid. In other words, if the SSI is lost, the recipient also loses their Medicaid benefits. In addition, any benefits previously paid for by Medicaid are recoverable. Thus, one should also pay attention to the inheritance of well-meaning grandparents.
Distributions from the trust to beneficiaries must be “in kind” rather than in cash. For example, a trust can own items such as furniture and allow the beneficiary’s child to use them. In addition, additional need trusts must be carefully designed so that they only allow payment for any benefits over and above what the government provides, not only now but also in the future. The child must not control or have direct access to any part of the guardianship.
The main problem for parents today is the increasing life expectancy of their disabled child. With great advances in medical care, many disabled children, who in earlier days had preceded their parents, are now surviving on them. To solve this problem, parents often make planning mistakes by leaving a disproportionate share of the inheritance to children with disabilities. This can lead to hard feelings on siblings who, while initially agreeing to such an arrangement, may find themselves in need of funds later in life and resent the unequal distribution of children with disabilities. Living siblings are often the only support network available for children with special needs, so it is important to maintain peace and harmony within the family.
Often, an analysis with an estate planning attorney will reveal that the income from an equal division of inheritance will, in fact, be sufficient to meet the needs of a disabled child. Otherwise, “second-to-die” insurance can be purchased to provide the additional funds needed. Written policy of two lives, both parents. Because the insurance company only has to pay when the second parent dies (that is, when funds are needed), the premiums are much lower than for a single-life policy.
Some parents, who feel the family is close enough, think that they can easily leave an inheritance to a brother or sister who will then take care of a disabled sibling. It does not provide protection to a disabled child if a sibling experiences financial difficulties, divorces or dies earlier than a disabled child. An additional need trust allows siblings, as guardians, to manage assets for the benefit of the disabled child while providing full protection for the funds and naming a backup trustee to continue the trust in the event of the child’s death or disability. early guardian. Remember, this trust may have to last for years.
With the complexities of modern trust administration, many parents opt for a personal and professional trustee, so family members can provide personal input while a professional trustee handles administrative matters, such as monitoring investments and preparing tax returns.
It’s also a good idea to review beneficiary designations on IRAs and 401(k) as well as on annuities and insurance policies so that the additional needs trustee of the disabled child is referred to as the beneficiary rather than the child itself. Be careful with simple designations like “my partner is first and my children are second”.
Another key issue is the continuity of child care after the death of the living parent. A revocable living trust is often used as an optional inheritance plan because the trustee can use and distribute assets for the benefit of a disabled child immediately after the death of the parent, unlike in the case of a will, which must be proven prior to court proceedings to determine its validity. This process can tie up plantation assets for months or even years in some cases.
Not to be missed in planning for a child with a disability is the “Letter of Intent” or Personal Needs Book, in which parents must provide the following information to guardians
(1) the nature of the child’s disability
(2) emotional and financial care provided by the family
(3) people involved with children
(4) children’s abilities and limitations
(5) likes and dislikes them
(6) habits and nuances of their behavior
(7) their daily routine, and
(8) how they act with other people and elsewhere when parents are not around.
One last word of caution. Where a child with a disability is involved, it is more important that funds are available when needed. Thus, long-term care insurance for the elderly should be arranged so that the money that families rely on to support a disabled child is not lost to the potential home care costs of the parents.
