Parents of Disabled Children Should Consider Supplemental Needs Trusts
When parents of a disabled child plan their estates, some believe they should leave inheritances to another family member, often another son or daughter, so the person they designate will care for their disabled child on their deaths.
The reasoning is “I cannot leave a third of my estate to Joseph since, with his disability he would be unable to handle the money. Besides, he might lose government benefits if he inherits. I know that his brother, James, is very fond of Joseph. He will take care of him with the money.”
Parents may believe that this is their only option. It is not. A type of trust referred to as a Supplemental Needs Trust or Special Needs Trust may be established either in their Wills or during their lifetimes to hold funds intended for their disabled child without having them lose government benefits. There are technical requirements and the fund must be administered properly but a Trustee can still be a family member or trusted advisor.
Leaving one person’s inheritance to another sometimes works but there are risks involved in the “leave to James to use for Joseph” kind of estate plan.
Here are some of them.
Inter-family rivalries and jealousies. Assuming that James really is fond of Joseph and intends to care for him for the rest of his life, other siblings may not react well to the more generous inheritance received by James even where they know it is meant to provide also for their disabled brother. Jealousy from the lopsided inheritance may cause them to refuse to help James later if James is unable to continue to handle the many responsibilities involved. This leads to the next concern.
Disability or death of the caregiver. James may become disabled and unable to continue to manage Joseph’s affairs. With no back up plan, there is no second person to step into James’s role and care for Joseph.
James could die before Joseph and the funds would be received by others including James’s widow and children who might not share them with Joseph.
Marriage and divorce. James could marry after taking charge of Joseph’s care, as told by lawyers helping obtain child custody. If part of the consideration is that Joseph would live with James, James’s wife would have input into whether this would continue.
On the other hand, James could already be married. If he divorces, his ex-spouse could receive a portion of the money intended for Joseph in her divorce settlement from James.
Creditors. While all family members may be on board with the inheritance going to James for the benefit of Joseph, creditors are not bound by this understanding.
Recognizing all of these risks, parents might consider trust alternatives. They are certainly correct, however, in recognizing that this solution has its issues too.
First, it is true that, if Joseph is on Supplemental Security Income (SSI), he would be in danger of losing his benefits if his assets increase by reason of inheritance. Funds should not go to him in a regular trust referred to as a “support trust” contained in his parents’ Wills.
Instead a Supplemental Needs Trust established by Will or during their lifetimes is written differently and specifies, among other things, that the funds are to be used to “supplement” and not to supplant benefits received from other sources including government benefits. The Trustee of this type of Trust, referred to as a common law Supplemental Needs Trust, must have absolute discretion on distributions. However, this issue is often taken care of by appointing someone such as James who has Joseph’s best interests at heart, as Trustee. Also, payments from the Trust must not go to Joseph directly but can be paid to a party or parties supplying goods and services to him.
Backup Trustees can be named in the documents to cover the circumstance where James can no longer serve.
Another strategy which I would strongly recommend is using a “Letter of Intent.” While not, strictly speaking part of the Trust and not legally binding, the Letter of Intent can specify the kind of care parents would like for their child after they are gone.
It can be as detailed as the authors want to make it and can include such matters as where parents would like their child to live, whether in a home of his own or a group home, for instance, and what his preferred recreational activities might be, and how funds should be used. It is limited only by one’s creativity and imagination and the dreams for one’s child after the parent is gone.
About the Author Janet Colliton
Esquire, Colliton Law Associates, P.C. Janet Colliton has practiced law for over 38 years, 37 of them in Chester County, Pennsylvania, a suburb of Philadelphia. Her practice, Colliton Law Associates, PC, is limited to elder law, Medicaid, including advice, applications and appeals, and other benefits planning including Veterans benefits, life care and special needs planning, guardianships, retirement, and estate planning and administration.