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Special Planning for Special Needs

Estate planning is rarely a simple task, but it can be even more difficult when parents have a disabled child to consider.  A natural reaction is to leave the lion’s share of the estate to the child with special needs, particularly if other children in the family are self-sufficient.  But knowing how to leave the assets is key to a successful estate plan.

Leaving money outright to a child with special needs — even one capable of handling the responsibilities of a windfall — may mean the loss of other forms of financial assistance.  The goal may be to guarantee that the child receives needed assistance after the parents’ deaths while also preserving payments from Social Security and state sources.  If the child is not capable of living independently, the estate plan should name someone to make decisions for the child and handle financial affairs.

For many parents, a special needs trust or discretionary trust is an essential part of their estate plan.  The trust can be established in a will or living trust, to be funded and begin operating at the last parent’s death.  The trust may be named beneficiary of a life insurance policy to provide sufficient funds to care for the child.  Several states allow parents to establish ABLE 529 plans, similar to state-operated 529 education plans, to pay for qualified disability expenses.

Charitable remainder trusts can make payments to special needs trusts for the life of a beneficiary who is incompetent.  At the beneficiary’s death, the assets in the special needs trust may be required to repay state expenditures or to pass as directed in the trust, while the balance in the remainder trust will pass to charity.