“Just because something is common sense doesn’t mean it is common practice.”-unknown
We often revere old sayings and folksy wisdom. Because we inherently respect what we percieve as wisdom from our elders, we don’t often question their advice even if the conditions in which the advice was first created have changed. It behooves us to periodically reassess that which we think is wise. The recommendation to disinherit a special needs child from their parent’s estate is an example of such dated advice. It is emblematic of why old advice dies hard and why what is common may no longer be relevant.
In our grandparent’s generation many families with special needs lived in isolation. The prevailing thought was to institutionalize those with complex needs. While our parent’s generation championed the closing of most institutions and changed the way we view special needs in our society, they still didn’t have many options available to assist them to care for their children with their estate. They simply did not have enough tools in the their tool box. Disinheretance was one of their few choices.
While many special needs adults live independently they may only have a minimum of assistance and rely on Supplemental Security Income (SSI), Medicaid or other government benefits to provide food and shelter. The problem is, SSI and Medicaid are means-tested programs with very strict income and asset limits. The parents of a child who receives these benefits were highly concerned about leaving money directly to their child because an inheritance could end access to any one of these vital programs. Before 1993, parents of a child with a disability had three predominate options for estate planning.
The first option was to distribute assets directly to the child. This was the least preferred option because this solution likely caused their child to lose their benefits and could be very costly in the long-term. The second option was to simply disinherit the child. This solved the issue of their child losing benefits however cut the child out of any of their parents estate. The third option was to distribute assets directly to a sibling with the hope that sibling would use the designated assets for the benefit of the child with a disability.
Common Misperceptions and the Impact of Poor Planning
Leaving an estate directly to a child with special needs is fraught with issues. If the estate is worth more than $2000, this sudden income will trigger a loss in federal and state benefits. The child could lose their SSI, they could no longer qualify for Medicaid, and their public housing benefits could be at risk as well. The only reason to leave your estate directly to your child is if you are independently wealthy and do not anticipate relying on public assistance.
Unfortunately, disinheriting a special needs child may seem like the only choice for parents with very limited assets. Some parents who have other children to support believe their special needs child can survive on public assistance and will be cared for even after they are gone. They choose to preserve those benefits through disinheritance so their estate can go to their other children who may not have any other caregivers or resources. This is a harsh choice. Unfortunatly, their special needs child may not have the ability to earn a living and increase their lot in life. They are at the mercy of the public. There is a better way.
Benefits are not enough
Too much emphasis is put on public benefits. While we admittedly live in a generous society and public benefits are a lifeline to many families, SSI and SSDI only provide small cash benefits that might not be nearly enough to support a person with complex needs. Public benefits will only cover the basic necessities and ensure a minimal quality of life. By not leaving an inheritance and only relying on public benefits we are severely limiting our child’s opportunities.
Government benefits are subject to the whims of Congress and state legislatures. Benefits that provide for a child with special needs today could be reduced or eliminated in the future due to budget cuts and fiscal pressures. We already see this play out year after year. The unplanned reduction in public benefits could leave a child with no inheritance in a precarious position.
Needs Will Change
Don’t assume your child’s needs won’t change. While the current plan you have for your son or daughter may be working well now, it is likely his or her needs may change overtime. Care or advocacy that is free today or may not yet be necessary may be required in the future. Putting all of your eggs in the public benefits basket can cause undue hardship.
Siblings are not the answer
Some parents either don’t believe they have the means, or have been led to believe they can circumvent the need to conduct proper estate planning . They believe disinheriting the child with special needs and leaving their share to a sibling or other relative to “hold” for the child with special needs is a feasible solution. While families may trust that their other children will take care of the child with special needs, this approach incurs considerable risk.
While your non-special needs children may indeed be physically, financially, and emotionally available for their sibling with special needs, there’s no guarantee this is a sustainable solution. What happens if the other children don’t use that money to look after their sibling as you had intended? Or what if something happens to the caregiving sibling?
Poor health, early death, or financial pressures could limit their ability to care for their sibling. Your plan for your other children to take care of your son or daughter with special needs may work out fine, but it may not, and that is a risk too big to chance. Even if you trust them to honor their commitments, life sometimes gets in the way.
If the caregiving sibling gets married, would taking care of their brother or sister interfere in their lives and will their new spouse be willing and able to as well? What if marriage issues develop? If they get divorced and the money is in the sibling’s name, then the sibling’s ex-spouse may be able to make a claim for the inheritance. The sibling can claim it was non-marital, but many courts will ignore that distinction.
What if they need to move to another part of the country for work or other personal requirements? The very act of moving across state lines can reduce government resources or limit a sibling’s ability to care for and pay attention to a brother or sister with special needs. You may be thrusting a moral obligation on one of your children. Be forewarned, shouldering this type of burden can cause resentment.
Giving your assets to someone else gives them legal ownership of those assets. They may decide they’d rather not honor their commitment to provide for your special needs child, or perhaps not to the extent you had hoped. Through disinheritance your estate would only legally belong to the designated caregiving sibling and can be exposed to other personal liabilities and legal issues. For example, if the sibling is involved in a car accident and a judgment is filed against him or her, the bank account that was supposed to be used for the child with special needs can be seized as part of that judgement.
The solution; a Special Needs Trust
Estate planning for parents with special needs presents special challenges. The goals of the parents are to utilize their assets in such a way to enrich their child’s life while, at the same time, preserving the child’s public benefits. Thanks to recent legislative changes, disinheriting a child should no longer be the predominate solution.
The Omnibus Budget Reconciliation Act of 1993 (OBRA-93) changed everything for special needs families. This fantastic piece of legislation effectively created a fourth option; distribute the assets to a trust solely for the benefit of the child with a disability. OBRA-93 authorized the use of Special Needs Trusts (SNT) to receive assets while at the same time preserving eligibility for public benefits such as SSI and Medicaid. It is a win-win scenario.
Instead of disinheriting a child with special needs, parents should almost always establish a SNT for their child’s benefit. When properly drafted by a qualified special needs attorney, a SNT acts as a “bucket” to hold a child’s inheritance so that it can be used to supplement their government benefits. Special needs trusts are incredibly flexible. In addition to receipt of the proceeds of your estate, the SNT can hold life insurance benefits and retirement funds as well. This enables families without a lot of fully liquid resources to still provide for their children with special needs long after they are gone (Source).
OBRA-93 changed special needs planning for the better. Unfortunately incompetent planners, or uniformed parents, may still be operating under a premise which is dated and no longer valid. In almost all cases, families should strive to establish a SNT and finally put aside the myth of disinheritance. Sadly, the preponderance of law offices cautioning special needs families against disinheritance must be an indicator of how prevalent of a problem it still is. Old advice dies hard, indeed.
“Wisdom is to live in the present, plan for the future and profit from the past.” -uknown