Families who have children with special needs, whether minors or adults, must take care in developing their estate plans. These families must take certain steps to properly protect and provide for those children during the special needs estate planning process.

A child with special needs brings many changes to a family. Parents embark on this unplanned and often daunting journey with no real sense of what the future holds for their child. However, parents can make some plans for their child’s future by engaging in special needs planning.

You may need guidance in creating an estate plan for your family that will best provide support for your child with special needs. We can advise you about estate taxes, probate avoidance, income tax considerations, changes in beneficiary designations, and other techniques to make your estate plan work for you. Together, we can create the estate plan that is best calculated to meet your goals while still caring for your child with special needs.

Having a law firm on your side who truly understands the nuances and laws that affect individuals with special needs and the benefits that they may receive can be crucial to a successful estate plan. If your goal is to create an estate plan that will enhance and support your child with special needs, you can rely on the special needs estate planning attorneys of Rubin Law to help.

Understanding the Goals of Special Needs Estate Planning

While many parents want their estate plans to operate as financial support for their children, parents of children with special needs often have more specific goals. They also have unique considerations that may not be relevant to most families during the estate planning process. For example, the parents of special needs children often have the following goals in mind as they create their estate plans:

• Money management for the lifetime of their special needs child.
• Protection of the child’s entitlement to public benefits.
• Provisions of funds to enhance existing public benefits or substitute for them if those benefits should become unavailable.

By keeping these critical goals in mind, we can help you create the estate plan that best suits the needs of you and your family.

Financial Planning for Your Child with Special Needs

One major aspect of special needs planning involves financial support for your child. You must be aware of the effects of financial support from family members on your child’s eligibility for public benefits such as Social Security, Medicaid, and more. These benefits have different criteria and factors to consider when your child is a minor and an adult. Assets belonging to your child also may have tax consequences and trigger state Medicaid “payback” provisions after your child’s death if you do not carefully structure financial support to avoid these potentially adverse implications. A special needs trust attorney can assist you in drafting the legal documents necessary to address all these concerns.

Special Needs Trusts

First-Party or Self-Funded Special Needs Trusts

First-party or self-funded special needs trusts typically contain assets that belong to the child. For instance, if a child receives a settlement from a medical malpractice or personal injury lawsuit, the funds can go into this type of trust. For tax purposes, these trusts disregarded as an entity, so funds are taxed at the lower individual rather than the higher trust tax rate.

Third-Party Special Needs Trusts

The third-party special needs trust is usually a fundamental part of special needs planning. Parents often use these trusts to leave an inheritance to their child. These trusts allow your child to have access to funds for necessary expenses that add to their quality of life without endangering their eligibility for public benefits. As distributions are made for the benefit of the child, they may cause taxable income to be taxed at the child’s tax rates, which are generally lower than the trust’s tax rate. Furthermore, there are ways to minimize the child’s tax liability. The trust can also pay the child’s taxes out of trust assets.

Testamentary vs. Free-Standing Special Needs Trusts

Parents also can create a special needs trust as a testamentary trust. For instance, their wills can provide that certain assets go into a special needs trust to benefit their child to be established upon passing of both parents.

Another option is for parents to create a special needs trust during their lifetime or a “free-standing” special needs trust. This type of trust allows other family members, such as grandparents, aunts, uncles, and siblings to contribute to the trust if they wish. There are many additional reasons that this type of trust is generally preferable to a testamentary special needs trusts.

Maintaining Eligibility for Public Benefits

These trusts allow parents to save funds or assets for their children without endangering their eligibility for various public benefits programs. In addition, since the children with special needs have no direct access to the trust assets, they can continue to receive needs-based public benefits with no eligibility concerns.

Ensuring Financial Management of Assets

Furthermore, special needs trusts are useful if children with special needs cannot manage their finances. A trustee manages the trust assets and controls the spending or usage of any trust assets. This safeguard ensures that the children have proper financial management after their parents’ deaths.

No Required Medicaid “Payback” Provision

Another advantage of the third-party special needs trust is that it need not contain a “payback” provision for Medicaid benefits upon the beneficiary’s death. This benefit can allow more generous and flexible distributions to the child with special needs during their lifetime.

Tax Consequences

A third-party special needs trust often will result in some taxable income to the individual with special needs as distributions are made. A careful analysis of the trust assets and each individual’s situation is necessary to determine how to minimize the individual’s tax liability. The trust can pay any tax liability out of trust assets.

Designating Others to Care for Your Child When You Are Unable to Do So

As the parents of a child with special needs, you also need to consider what happens if you can no longer care for your child due to incapacity, death, or another reason. You can engage in special needs planning that specifically addresses this situation.

Some legal documents to consider concerning your child’s care can include:

• Guardianships and alternatives to guardianships
• Short-term guardian declarations
• Powers of attorney
• Letters of intent

You likely are the best source for choosing people to care for your child (or oversee the support system that your child will need to live full, safe, and happy life after you are gone or become incapacitated. While no one enjoys thinking about these possibilities, making these hard decisions now can avoid a great deal of upheaval, uncertainty, and stress for your child and your family in the future.

Meeting Your Child’s Other Future Needs

You also may need to consider how to meet your child’s educational, residential, social, and emotional needs, both now and in the future. To that end, we can discuss and provide you with guidance on:

• Special education issues.
• Assisting your child with choices under the Illinois Health Surrogate Act.
• Residential and day programs.
• The impact of other situations on your child’s public benefits, such as lawsuit settlements, divorce, and more.

Call Rubin Law Today for Assistance with Special Needs Estate Planning or Guardianship

Rubin Law is the only law firm in Illinois exclusively limited to providing compassionate special needs legal and future planning to guide our fellow Illinois families of children and adults with intellectual disabilities, developmental disabilities, or mental illness down the road to peace of mind.

For more information, email us at email@rubinlaw.com or call 866-TO-RUBIN.