Parents of children with special needs are faced with unique considerations and choices when developing their estate plan.

How can you provide for all of your loved ones without jeopardizing the ability of the child with special needs to qualify for means-tested government benefits, including Medicaid and Supplemental Security Income (SSI)? How do you ensure that assets are available at the time of your death to care for the child? And who should supervise and manage these assets to ensure your child is properly cared for?

An estate plan can help ensure your child’s welfare

The goal of many estate plans when considering a child with special needs is to ensure that your estate is utilized and managed for the child’s welfare, while still maintaining their eligibility for public assistance programs—especially SSI and Medicaid, which require the child to meet strict financial eligibility criteria. Qualifying for these programs allows a child with special needs to be eligible for assisted housing, transportation, and employment assistance, attendant aides, and other valuable benefits. Medicaid, in particular, also allows the child to qualify for necessary health care programs, along with many other public assistance programs.

Estate plan options for a child with special needs

When creating an estate plan for a child with special needs, families typically have four approaches to consider:

1. Leave an inheritance to the child directly. This option would almost certainly disqualify the child with special needs from public assistance programs and, depending on the nature of the individual’s disability, could place unreasonable expectations for money management on them. Generally, there may be options preferable to this one.

2. Disinherit the child with special needs. While this would likely preserve their qualifications for Medicaid and SSI, it would provide no safety net in the event that public funding were to cease or otherwise be restricted.

3. Direct the estate to siblings of the child with special needs. In this way, brothers and sisters of the child with special needs would manage the estate for the benefit of their sibling. However, this option potentially opens the assets to creditors’ claims against the siblings, not to mention the potential conflict that may arise among brothers and sisters who may consider the assets theirs, rather than for the benefit of their sibling.

4. Establish a Special Needs Trust. By using a properly drafted, funded, and administered Special Needs Trust, the child with special needs will continue to qualify for public assistance programs, specifically Medicaid and SSI. There are strict limits placed on the trustee’s ability to give money to the child— and because the child with special needs cannot access the funds directly, the trustee can ensure proper money management for the benefit of the child after the parents’ death. See the next section for more details about this type of trust.

How do I set up a special needs trust?

Creating the trust. A Special Needs Trust can be created at the time of the parents’ death by incorporating a trust within their Last Will and Testament. This is known as a testamentary trust. It is often preferable, however, to utilize a Living Trust—which is created and funded during the parents’ lifetime in order to avoid probate, potentially engage a co-trustee, and offer a vehicle to receive funding from other family members, including grandparents. It is important to coordinate estate plans within families that contain an individual with special needs, so that well-meaning relatives don’t unintentionally leave assets to individuals with special needs—inadvertently disqualifying them from public benefits in the process.

Choosing a trustee. Selecting a trustee for your Special Needs Trust is an important decision, as this individual or institution will be responsible for administering the trust. While your first instinct may be to name a family member as trustee, given the complex and potentially emotional nature of administering a Special Needs Trust, this is one area where it is often preferable to select an independent, unrelated person to serve as trustee. This can include more distant relatives, your attorney, non-profit organizations specializing in Special Needs Trusts, or a professional corporate trustee. Selecting the right trustee can be a complicated affair, and your Janney Financial Advisor can provide recommendations within your best interest. 

Working with Janney

Depending on your financial needs and personal preferences, you may opt to engage in a brokerage relationship, an advisory relationship or a combination of both. Each time you open an account, we will make recommendations on which type of relationship is in your best interest based on the information you provide when you complete or update your client profile.

When you engage in an advisory relationship, you will pay an asset-based fee which encompasses, among other things, a defined investment strategy, ongoing monitoring, and performance reporting. Your Financial Advisor will serve in a fiduciary capacity for your advisory accounts.

For more information about Janney, please see Janney’s Relationship Summary (Form CRS) on www.janney.com/crs which details all material facts about the scope and terms of our relationship with you and any potential conflicts of interest.

By establishing a relationship with us, we can build a tailored financial plan and make recommendations about solutions that are aligned with your best interest and unique needs, goals, and preferences. Contact us today to discuss how we can put a plan in place designed to help you reach your financial goals.

This is for informative purposes only and in no event should be construed as a representation by us or as an offer to sell, or solicitation of an offer to buy, any securities. The factual information given herein is taken from sources that we believe to be reliable, but is not guaranteed by us as to accuracy or completeness. Opinions expressed are subject to change without notice and do not take into account the particular investment objectives, financial situation, or needs of individual investors. Employees of Janney Montgomery Scott LLC or its affiliates may, at times, release written or oral commentary, technical analysis, or trading strategies that differ from the opinions expressed within.

About the author

Martin Schamis

Vice President & Head of Wealth Planning

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