Estate Planning Options Available To Special Needs Families

There are five estate planning options available to parents concerning their special needs child:

(1) Distributing assets outright to the special needs child (not recommended since the assets may disqualify the child from receiving means-tested government benefits);

(2) Disinheriting the special needs child (generally not recommended since the child will have no “safety net” if government benefits are subsequently reduced or eliminated);

(3) Leaving property to another family member with the “understanding” that the property will be used for the benefit of the special needs child (generally not recommended since the arrangement is not legally enforceable and the sibling’s creditors (including a potential ex-spouse) may be able to seize the assets);

(4) Establishing a third-party discretionary support trust for the special needs child (generally not recommended since the trust will, in many states, disqualify the child from receiving means-tested government benefits); and

(5) Establishing a third-party created and funded SNT for the special needs child (highly recommended since the trust will not disqualify the child from receiving means-tested government benefits).

If an irrevocable inter-vivos third-party created and funded SNT is established by the parents or grandparents, the parents’ (or grandparents’) wills should specify the source for the payment of any death taxes attributable to the trust if any part of the third-party created and funded SNT is included in the parents’ (or grandparents’) gross estate. These trusts should not include a Medicaid Benefits payback clause. If it’s not drafted properly, you can create a requirement to reimburse Medicaid.