By Ronald A. Fatoullah, Esq. and Yan Lian Kuang-Maoga, Esq.
{3:46 minutes to read} Parents of children with disabilities have a lot on their plates. While the day-to-day care of a child with disabilities is paramount, it is also crucial for parents to plan for their child's financial needs and continuing care. Engaging in proper financial and legal planning is generally done to make sure that the funds available to the child will not jeopardize the child's eligibility for any governmental benefits, such as Supplement Security Income (SSI) or Medicaid. Planning for families of children with disabilities often involves two parts-planning for the child's money and planning for the parents' money.
Planning to Protect the Child's Money
Oftentimes, a child's disability may be the result of some compensated personal injury and therefore the child may come into a sum of money. While this sum of money is helpful to have for the care of the child, it is often not nearly enough to provide for his or her lifetime care. Therefore, a properly structured plan should protect the settlement funds to supplement the benefits that the child would be entitled to from government programs such as Medicaid to cover medical costs. A Special Needs Trust (or Supplemental Needs Trust) is one great vehicle to protect the child's settlement money. This type of trust is well established and recognized by all governmental agencies to preserve the money of the child with disabilities. A Special Needs Trust funded with the assets of the child is called a First Party Special Needs Trust. First Party Special Needs Trusts have specific requirements in order to be recognized as such. One requirement is that there must be a "payback" provision. This means that once the child dies, any balance of assets in the trust must go towards reimbursing Medicaid for all medical expenditures paid for on behalf of the child. This type of trust can also be used for any inheritance that the child may receive during his or her lifetime.
Planning to Protect the Parents' Money
By law, a child is entitled to a portion of his or her parents' estate. Therefore, unless parents actively plan to avoid such an inheritance, the child with disabilities will get a portion of the estate. As mentioned above, while a Special Needs Trust is a great vehicle for protecting the funds of the child, including funds from an inheritance, the disadvantage is that any balance in the trust must go towards paying back Medicaid. Most parents would prefer any balance to be distributed to their intended beneficiaries. Therefore, it is recommended that parents engage in planning and establish a Third Party Special Needs Trust for their child with disabilities. A Third Party Special Needs Trust also enables funds to be set aside for the child without affecting his or her government benefits. However, as it is a Third Party Trust which is funded with the parents' assets, there is no need for a "payback" provision, and the parents can designate the beneficiaries to receive any balance remaining in the trust after the child dies. A Third Party Special Needs Trust may be set up as a "living trust" (a live and active trust while the parents are alive) or a "testamentary trust," which means that it is provided under the wills of the parents and will not come into effect until the parents pass away.
Fortunately, the assets of a child with disabilities and his or her parents can be set up in such a way as to provide for a positive quality of life by supplementing the benefits the child may receive from various governmental agencies. However, it is imperative to engage the services of an attorney knowledgeable in this area of law to properly set up the trust for the child and the estate plan for the parents.
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. Yan Lian Kuang-Maoga is an elder law attorney with 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 a partner with Advice Period, a wealth management firm, and he can be reached at 424-256-7273.
No Comments
Leave a comment