Structuring an Inheritance for a Special Needs Child

By Ronald A. Fatoullah, Esq. and Debby Rosenfeld, Esq.

{4:44 minutes to read} There is a vast amount of financial planning that can be done for an individual with special needs. Oftentimes, a person with special needs relies heavily on governmental entitlements to cover many of the things he or she needs in order to live a safe and productive life. These entitlements include, but are not limited to:

• Group housing;
• Supplementary income;
• Medical insurance; and
• Prescription benefits.

Some of these benefits are only available for those who are deemed to be impoverished. Accordingly, parents of children with special needs are typically concerned about leaving any assets directly to them.

The concern is usually more than just that of a child losing his or her benefits due to suddenly having more than the allowable amount of assets. An individual with special needs may not be capable of handling funds. Such a person may be a spendthrift, or he/she may be very vulnerable to predators. As elder law attorneys, we have seen too many situations in which a person with a disability unwittingly gave away his life savings. We have also seen someone who is on Medicaid comes into a significant inheritance, thereby jeopardizing those medical benefits. While some of these problems can be rectified with follow-up planning, it truly makes far more sense to engage in preemptive strategies.

The best option for addressing the inheritance of a special needs child, and the most commonly used vehicle, is a supplemental needs trust. When parents prepare their wills, instead of leaving any money outright to their special needs child, they can instead leave the money to a supplemental needs trust. Based on a properly drafted will, upon the death of both parents, the share designated for the special needs child (the "beneficiary") will not pass directly to the child, but rather to the trustee of a trust established specifically for such child's benefit.

The trustee is the person designated by the parents to manage and oversee the trust's assets and ensure that the beneficiary's needs are met. The trust essentially provides that the funds of the trust can be used for any of the beneficiary's ancillary needs, such as travel expenses, entertainment, computers, etc. The trustee, however, is prohibited from using the trust assets for any of the beneficiary's medical needs. If the special needs child is covered by Medicaid, this trust would ensure that he/she could remain on Medicaid because even though he/she is the beneficiary of a trust, the trustee cannot use the funds for the beneficiary's medical expenses. Accordingly, Medicaid eligibility and coverage will continue uninterrupted.

Another aspect of the trust that makes it work in the context of special needs planning is that the trustee is given complete discretion over the trust assets. For a special needs trust to be effective, the trustee must be the ultimate arbiter of any trust disbursements or distributions. If the terms of the trust specifically mandated that the trustee makes weekly or monthly payments to the beneficiary, such amounts would be treated as part of the beneficiary's assets or income, thereby undermining any needs-based governmental benefits.

People are often confused by the actual mechanics of the trust. The trust is essentially created when the parents sign their respective wills. However, it does not go into effect until both parents pass away and the will of the last parent to die is probated. At such point, through the probate process, the trust becomes effective and a certificate-referred to as a "letter of trusteeship"-is given to the trustee in order to open accounts in the name of the trust and carry out the parents' wishes.

The results of solid planning are manifold. The beneficiary's entitlements can continue in a fluid and continuous way. The beneficiary will have the added benefit of someone overseeing his or her inheritance and addressing his or her ongoing necessities. The parents, during their lifetimes, can have the comfort of knowing that their child's needs will be taken care of, even after their deaths.

Ronald A. Fatoullah, Esq. is the principal of Ronald Fatoullah & Associates, a law firm that concentrates in elder law, estate planning, Medicaid planning, guardianships, estate administration, trusts, wills, and real estate. Debby Rosenfeld, Esq. is a senior staff attorney at the firm. The law firm can be reached at 718-261-1700, 516-466-4422, or toll-free at 1-877-ELDER-LAW or 1-877-ESTATES. Mr. Fatoullah is also the co-founder of JR Wealth Advisors, LLC. The wealth management firm can be reached at 516-466-3300 or 800-353-3775.