Within twenty-four hours of our daughter Abby’s birth, my husband and I learned that there was an issue with her hearing. Her congenital hearing loss diagnosis (“Connexin 26 resulting in bilateral, sensorineural, mild/moderate loss”) by the specialists at Children’s Hospital would open us up to a dizzying, yet wonderful, world of expert physicians and audiologists, dedicated therapists and parents, incredible teachers and amazing children. After five years of hard work and tremendous help from terrific people, Abby entered a mainstream full-day kindergarten class just weeks ago, and has a future as promising as any other child. However, Abby may qualify for public benefits as an adult due to her hearing loss diagnosis, accordingly, we have to give special consideration when preparing for our, and for her, future. Implementing the right estate planning options for children with health conditions ranging from “mild,” as we view Abby’s diagnosis, to serious, can not only preserve a quality of life that parents work hard to achieve for their child, but it can ensure stability and dignity through adulthood, even if, and when, the child’s parents have passed on.
Generally, the needs of the child will dictate what type of plan is proper to implement. Estate planning options vary depending upon the age of the child at the time of planning and what is known about the child’s health care needs and job options. If a child has a health issue but will be able to manage his or her own work life and earn enough to support a family, the goal of an estate plan will be to supplement a working adult’s earning capacity by creating a trust which can, for example, make distributions that help the employed adult’s living situation. Estate planning for minor children becomes more complex when a child has a qualifying health condition which meets the definition of “disability,” whether the health condition is developmental, psychological, cognitive, or mental. If a child is not expected to be self-supporting due to the health condition and/or will qualify for public benefits, such as Medical Assistance and Supplemental Security Income, a special needs trust, or supplemental trust, as it is sometimes called, should be implemented in order to avoid disqualifying the disabled individual from benefits. That is because individuals who receive Social Security Supplemental Security Income (SSI) benefits, Medicaid and other state benefits are very limited in what they can have in assets and income while maintaining their benefits.
There are three basic categories of special needs trusts: (1) the third-party special needs trust, created by relatives and friends of a minor with a disability; (2) the self-funded special needs trust, which can be funded by an under 65-year-old disabled public benefit recipient or his or her representative; and (3) the pooled trust.
The first type of trust, the third-party special needs trust, is created by another person (not the child/beneficiary) for a disabled beneficiary of any age. Upon the death of the disabled person, any remaining money in a third-party special needs trust can be left directly to a designated contingent beneficiary (such as the sibling or offspring of the disabled beneficiary), without having to pay back the assets. The special needs trust generally provides that the money contained in the trust will be used to pay for the care of the child/adult which is not taken care of by the public benefits system (such as dental care and treatment or other health care not covered by private plans or public coverage, differentials in costs between housing and shelter for shared and private rooms, private rehabilitative training, private case management to assist the person with bookkeeping, periodic outings, etc.).
The second type of trust, the self-funded special needs trust, is for beneficiaries under the age of 65. It is often established by a court, parents, grandparents or guardians and funded with a disabled person’s settlement or unprotected inheritance. It can also be created by the disabled person himself or herself. Regardless of who establishes or funds the trust, the trust must contain a “payback provision” which agrees to pay back the money remaining in the trust at the disabled person’s death to the state agency which administers the medical assistance program. By agreeing to payback the benefits, the individual may continue to receive medical assistance benefits.
The final type of special needs trust is the pooled trust. In a pooled trust, the trustee is a non-profit organization which manages the funds of many individuals (typically other disabled persons) and invests these funds collectively, while maintaining separate accounts for each individual beneficiary. Upon the death of each beneficiary, the monies in that beneficiary’s account can either be used to repay the state agency which administers the medical assistance program or remain in the Trust to be used for the benefit of other persons with disabilities. Pooled trusts are generally used where the money available to fund a trust is modest in size such that a corporate trustee would not be available or practical.
Of the three, the basic planning approach for parents of a minor child who want to preserve public benefits for their child may be to:
· include a will with a testamentary special needs trust for the child;
· nominate a guardian and conservator for the child in the will;
· avoid naming the child as a beneficiary of an IRA or qualified benefit plan;
· provide substantial life insurance on both parents;
· prepare other estate planning documents with disabled child provisions;
· prepare care plan recommendations for future caregivers and for the trustee; and
· avoid living gifts to a UTMA account or Crummey Trust withdrawal powers for the child.
Parents of a child with a serious health condition often say that their knowledge about health care options, treatment, education and service programs can make a world of difference with respect to their child’s quality of life. Careful estate planning can do the same, and can extend quality of life to a time when the parents can no longer be there for the child.
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