“Estate Planning for Parents of a Child With Special Needs “

Crystal L. Welton, J.D., LL.M.

While most parents of children with special needs are overwhelmed by and consumed with insuring that their children receive an appropriate education, these parents should also be aware that it is imperative that they consider proper special needs and estate planning. While children
with special needs could certainly receive Medical Assistance (“MA”) from the Pennsylvania Department of Public Welfare (“DPW”), Supplemental Security Income (“SSI”) from the Social Security Administration (“SSA”) and/or waiver services through the Department of Mental Health/Mental Retardation, it is likely that an adult individual with special needs will qualify for the above referenced, so long as s/he meets the definition of “disabled” according to the SSA and meets the income and resource eligibility requirements imposed by the providing organizations.

Most individuals are familiar with a Last Will and Testament, which, among other things, disposes of an individual’s property according to one’s wishes. When a parent of a child with special needs plans his/her estate, it is essential to consider the use of a Special Needs Trust.

Special Needs Trusts are designed to permit financial resources, including annual gifting and monies from inheritances, to remain available to assist a disabled individual who receives, or may receive in the future, MA, SSI, or waiver benefits. When parents of a child with special needs
create a Last Will and Testament, any assets left to that child outright will be considered a resource of the disabled child and will disqualify him/her from receiving public benefits, if these assets cause the resources of the disabled child to exceed two thousand dollars.

By using a Special Needs Trust as part of an estate plan, it will allow the inheritance and/or annual gifts to be held in Trust for the benefit of the child with special needs as well as allow the child to remain, or become, eligible for public benefits because the Special Needs Trust is treated as entity separate from the disabled individual. It is also important to advise other family members, such as grandparents, to only leave assets to a Special Needs Trust for the benefit of the disabled child as opposed to leaving assets to the disabled child. A Special Needs Trust can also be named as the beneficiary for retirement plans and insurance policies. Because money from third-parties (i.e., parents and grandparents) is used to fund these Trusts, there is no payback to the Department of Public Welfare upon the disabled individual’s passing.

When establishing a Special Needs Trust, it must include certain language to insure that it meets the requirements imposed by the DPW and the SSA. First, it must state that it is the intent of the Settlor, or the creator of the Trust, to supplement, rather than supplant, the public benefits received by the disabled individual and that such benefits will be considered prior to the distribution of any Trust income or principal. Second, the trust must be irrevocable, which means that the Trust cannot be revoked after the document is executed, or signed. Third, the Trust must be used for the sole benefit of the Beneficiary, which is the disabled individual. Finally, the Trustee, or the person who manages and administers the Trust on behalf of the disabled individual, has total, absolute, and unfettered discretion to pay, or refuse to pay, income and/or principal from the Trust.

Aside from disposing of one’s property, which is its main purpose, the Last Will and Testament allows the testator, or creator of the Will, to revoke other Wills or codicils, which may have previously been created; exercise a Power of Appointment, and employ techniques which may minimize, or eliminate, Federal Estate Tax liability. It allows one to select the individual(s) to serve as Executor; the Executor collects and disposes of the property and insures that the provisions of the Will are fulfilled. Further, it allows a testator to select who they want to serve as Guardian of any of his/her minor children should the parents die.

It is imperative that parents of children with special needs make certain their estate plans properly dispose of their property. If parents of a special needs child do not create a Last Will and Testament, any assets will pass through the laws of intestacy, which could potentially disqualify their special needs child from receiving public benefits because the assets, money, or other property will go outright to the disabled child. While there are techniques that can be used to insure that the disabled individual remains eligible for public benefits, a parent, by not properly disposing of his/her property, could inadvertently subject those monies inherited by the disabled individual to a payback by the Department of Public Welfare upon the disabled individual’s passing.