The Petrosewicz Law Firm Estate Planning Blog

Special Needs Planning is a Lifelong Event

Working to get her son assessed to qualify for support programs, fighting to get benefits and finding therapists became a full-time job, and one that led to enormous costs, even with the family’s having good health insurance. In a recent article “Their Child Has Special Needs. Here’s How They’re Planning for a Lifetime of Assistance” Barron’s explores the life-long journey of caring for a special needs family member.

Smyth’s biggest worry is the same as other parents in her situation: what will happen to her now 23-year old son, when she and her husband are no longer around to support him?

For families with a special needs child, the focus is on the health of the child, but the financial and legal planning to care for someone whose life will likely extend beyond the traditional financial life of the parents is critical.

The estimates of costs are overwhelming. The lifetime cost for a person with autism averages from $1.4 million to $2.4 million, depending on whether the person has an intellectual disability, according to Autism Speaks, an advocacy group. Residential or 24/7 care can easily cost $100,000 a year.

The medical assessment is often the first step to getting benefits, through Medicaid and developmental disability and autism programs. How much and which programs may be covered, depends upon the state. Where you live matters. For parents who are thinking about where to retire, moving to a condo in Florida might be great for lowered costs and taxes, but it could mean a special needs child loses important benefits.

Beneficiary designations must be planned carefully, since a special needs individual may not own more than $2,000 in assets. An inheritance or even a job could disqualify them from accessing programs. One way to avoid this is to open an ABLE account. It’s a state-run savings account that can be funded by the special needs individual or family members with after-tax money up to $15,000 a year, and can be used for housing, education, transportation, and other services. The account’s assets are not included in the benefits calculation as long as the total balance is under $100,000.

Another option is a special needs trust, which can shelter assets. Grandparents who want to leave money to special needs children leave it in a special needs trust. The same holds for life insurance policies that pay out on the death of the parents for the special needs child. Just be careful about over-funding the trust too early, as money that goes in cannot be withdrawn for other purposes. The beneficiary of the trust after the special needs child dies, does not get a step-up in basis for taxes.

Talk with an elder lawyer about planning for the special needs child. You’ll also need to have a health care proxy, a power of attorney, a HIPAA release form and a last will and testament. The estate planning elder law attorney with experience helping special needs families may also know of important resources in your community, which can be invaluable to the qualify of life for you and your child.

The Petrosewicz Law Firm can assist you with your estate planning and trust needs.  Contact us today at (281) 344-9455 or [email protected].  

Reference: Barron’s (November 29, 2019) “Their Child Has Special Needs. Here’s How They’re Planning for a Lifetime of Assistance”

Special Needs Family Requires Special Planning

Taking steps to plan for the future, when loving parents will not be there to help their disabled child as they age, is a hard thing to confront. However, planning in advance for special needs family members is vital. An article titled “4 Tips for Estate Planning When Your Child Has a Disability” from Yahoo! Lifestyle offers good insights and information. An elder law attorney with a focus on special needs planning will be an invaluable resource.

Create a letter of intent. This is a letter of instruction that includes information family and friends will need, if you die or become incapacitated. It should list all the information someone would need to step into your life to care for your loved one. That includes information about medications, daily routines, strategies you use for calming and other daily living information that only you know. The goal is for someone to be able to step in and see how your life works with as little stress as possible and make the transition easier.

Meet with an attorney with experience in special needs planning. Most attorneys will meet you for a free consultation. Allow them to help you build a vision for what you want your loved one’s future to look like. They will know how to plan out the future and what documents will be needed.

Create a will. You’ll want to be the one deciding who should be the caregiver for your child, and who should be in charge of your money. Without a will, the estate goes to probate and a judge who does not know you or your child will make these decisions. Having a will ensures that assets are distributed as you intended and that the care of your child is done by someone you select.

Create a special needs trust. Your attorney will help with this special type of trust, which allows you to distribute funds and property in a way that will not make your loved one lose their government benefits. Your special needs child is not permitted to have more than $2,000 in a bank account or they will become ineligible for Medicaid and Social Security.

Create an estate plan. The estate planning attorney will be able to help you use strategies to transfer assets, after you have passed.

Set up a power of attorney or guardianship. Do you need to take full guardianship of your special needs child, when they turn 18? Can he or she understand money and decisions? Will they ask for help? Supported decision-making is a viable alternative for some families, but you know your child best. If necessary, power of attorney for financial and for medical issues may work better. Talk to an attorney when your child turns 17, so that you can be prepared.

Establish an ABLE Account. An ABLE account ensures that benefits are not jeopardized. The account can hold money to ensure that your child never has more than the permitted number of assets.

Take this one step at a time, as you likely have done throughout your special needs child’s life. It may take a long time to put all of these steps in order, so start now.

The Petrosewicz Law Firm can assist you with special needs planning.  Contact us today at (281) 344-9455 or [email protected]. 

Reference: Yahoo! Lifestyle (August 26, 2019) “4 Tips for Estate Planning When Your Child Has a Disability”

Estate Planning When a Family Member Is Disabled

This kind of mistake can wreak havoc on many lives, which is why it is so important to work with an experienced estate planning attorney who is knowledgeable about special needs planning. The article, “Crafting an estate plan to include disabled family members” from The Ledger explains what is involved in special needs planning.

Supplemental Security Income (SSI) is a federal program that pays monthly benefits to disabled or blind adults and children. To qualify, an individual must have fewer than $2,000 of countable assets and very limited income. Medicaid is a Federal and State health insurance program that helps people with limited assets and income pay for their medical costs.

While it is common for people to name their spouse or children as beneficiaries in their estate plan, if your spouse or child is disabled and receiving government benefits, an inheritance will result in their loss of benefits, unless special planning is done.

A Special Needs Trust (SNT) is designed for disabled beneficiaries so that cash, real property, or any other assets are available for the person’s benefit, while still allowing the disabled person to receive their means-based government benefits.

There are several different ways to accomplish this, depending on your family’s situation. One way is to have a testamentary Special Needs Trust created within a will or trust that goes into effect, when the creator of the trust or the will dies. A SNT can also be created while you are living and can be funded, instead of waiting for it to go into effect at your death.

A third-party SNT can be named as the beneficiary of life insurance policies and retirement accounts, investment accounts or real property. The third-party SNT assets that are not used for the disabled beneficiary during their lifetime, can pass to non-disabled beneficiaries upon the death of the disabled beneficiary.

These assets will be free from Medicaid recovery efforts, since the property used to set up the third party SNT did not originally belong to the disabled beneficiary.

A first party SNT is set up and funded with assets that do belong to a disabled person, and no other funds can be contributed to this type of trust by any other donors. These are often used when a large settlement following an injury is awarded. In Texas and in other states, first-party SNTs are subject to Medicaid payback to reimburse the state.

Special needs trusts are complicated trusts and require the knowledge of an experienced attorney who devotes most, if not all, of their practice to SNTs and trust and estate planning.

The Petrosewicz Law Firm can assist you with special needs planning.  Contact us today at (281) 344-9455 or [email protected]. 

Reference: The Ledger (May 2, 2019) “Crafting an estate plan to include disabled family members”

What is an Irrevocable Life Insurance Trust?

As part of an overall estate planning strategy, an Irrevocable Life Insurance Trust, or ILIT, can be used to take the life insurance proceeds out of a donor’s taxable estate. One catch: the donor (the owner of the policy) must live for three years after the policy is transferred to the trust, in order for the proceeds to be excluded from the estate for any estate taxes.

The donor should also not be the trustee and may not retain any economic benefits from the policy, including the ability to change beneficiaries, to cancel or surrender the policy or to assign the policy.

If the donor is married, the surviving spouse may be a trustee, but should not be the sole trustee for most situations. A family member, or even a professional trustee, may serve as a co-trustee with the spouse.

The terms of the ILIT provide for the funds to be distributed to beneficiaries, or they also may be linked to another trust. That might be a Special Needs Trust or a Revocable Trust.

An ILIT also offers a level of asset protection to beneficiaries from creditors.

The ILIT pays policy premiums through gifts made to the trust. These gifts, it should be noted, do not qualify for the current $15,000 annual gift tax exclusion, unless the beneficiaries of the trust are given some very specific powers that will allow them to withdraw the gift to the trust for a period of time. These powers are known as “Crummey” powers. The trustee in this case must send “Crummey” notices to all the beneficiaries telling them about their withdrawal rights, when there is a contribution to the trust. An estate planning attorney will be needed to create and manage this.

An ILIT can be funded with term or permanent insurance that is in effect for the owner’s lifetime. To pass the proceeds outside of the donor’s estate, the donor may not borrow against or access the cash value of the insurance policy, once the life insurance policy has been transferred into the ILIT. However, the donor could indirectly benefit from the cash value through his or her spouse, who is a beneficiary of the ILIT.

Another way to use an ILIT is to establish it by a married couple and fund it with a second-to-die life insurance policy. The second-to-die policy pays out at the surviving spouse’s death and is often used as cash to pay estate taxes on illiquid assets or to fund a special needs trust.

The Petrosewicz Law Firm can assist you with your estate planning and trust needs.  Contact us today at (281) 344-9455 or [email protected].  

Reference: JD Supra (Jan. 21, 2019) “Estate Planning: The Irrevocable Life Insurance Trust”

Special Needs Families and Estate Planning

The challenges are even greater, if you are a parent of a child with special needs. It is likely that your child will outlive you and need a support system to handle everything from finances to personal care. Estate planning for a special needs family member is critical, according to the article “How to plan your estate when you have a child with special needs” from Austin American Statesman.

In some ways, estate planning for families with neurotypical children is the same. The basics need to be addressed. You need a will (perhaps in combination with a living trust), medical power of attorney, financial power of attorney, advance healthcare directive and HIPPA authorization.

However, one important thing is different. You need to be sure your estate is structured so when you pass, an inheritance does not disqualify your child from receiving government assistance.

Special Needs Trusts (SNTs) are created to help families ensure that their children will continue (or start) to receive benefits. A traditional estate plan could easily disqualify them.

Families need to think about their assets, as well as the needs of their child now and in the future. In some cases, that means the naming of a guardian to take care of the child and naming someone else to be responsible for finances.

Make sure to speak with the people you select for these roles. They need to understand what you are asking them to do and to be certain they are willing to take on these roles. Some families even write a letter to the people they name, to pass on more information. Often the letter includes who the family wishes their child to remain in touch with, or the personal preferences that they know keeps their child comfortable and happy. Some of the letters are highly detailed about finances or food preferences, while others focus on the love they have for their child.

Families with special needs children need to devote the time to planning for their eventual passing. Once the estate plan and special needs trusts are in place, however, you’re not done. Every few years, the documents need to be reviewed. Provisions can be included that will address issues as the child ages. However, as there are changes in life, there are also changes in the law and plans that need to be reviewed.

An estate planning attorney with experience working with special needs families will be able to create a plan that will ensure that your loved one will be cared for, long after the parents are gone. That peace of mind is invaluable.

The Petrosewicz Law Firm can assist you with your estate planning and trust needs.  Contact us today at (281) 344-9455 or [email protected].  

Reference: Austin American-Statesman (Sep, 17, 2018) “How to plan your estate when you have a child with special needs”

Tax Reform and People with Disabilities

The ramifications of the new Republican tax reform for individual Americans are still being assessed.

Some people will pay lower taxes, but a few will likely see their taxes increase. One group concerned about the new law was people with disabilities.

Not only will those with disabilities enjoy the standard deduction doubling under the Republican plan, but their taxes might decrease even further due to another provision. The plan includes a provision to lower the itemized deduction threshold for health care expenses in tax years 2017 and 2018. The new tax law lowers the deductibility threshold from 10% to 7.5% of adjusted gross income.

Not until 2019 will the threshold increase return back to 10% where it was pegged in 2016.

Accordingly, the fears expressed by The Hill in "Restructured tax code would unduly burden people with disabilities" did not come to pass.

There is something parents and grandparents of the disabled, as well as the disabled themselves, can do and that is create a special needs trust. These trusts do not ease anyone's tax burden but do allow people with special needs to have more income to help cover any increased taxes.

If you would like to learn more about special needs trusts, then talk to an estate planning attorney for the details about setting one up.

The process is complicated and needs to be done in a particular way in order to work but an experienced attorney can help you with that.

The Petrosewicz Law Firm can assist you with special needs planning.  Contact Benecia Flores in our office today at (281) 344-9455 or [email protected]. 

Reference: The Hill (Nov. 24, 2017) "Restructured tax code would unduly burden people with disabilities."

Changing a Special Needs Trustee

Special needs trusts offer substantial benefits for those people who have them.

They allow a beneficiary to have access to income, while remaining eligible for government benefits.

However, in exchange for that benefit, the trusts are very restricted. They must be created in hyper-specific ways and the beneficiary's ability to control the assets in the trust is limited.

Technically, the beneficiary cannot distribute or manage the trust assets.

That means a third-party trustee is needed.

If the trustee is not up to the job or intentionally mishandles the trust, it can be difficult for the beneficiary to change the trustee, as the Wills, Trusts & Estates Prof Blog discusses in "Can the Beneficiary of a Special Needs Trust Change the Trustee?"

A beneficiary of a special needs trust can petition a court to have the trustee removed and another appointed. However, this can be a difficult process and many people with special needs are not able to handle the complex legal issues of filing a petition with the court, let alone arguing for a trustee change.

This could potentially stick a beneficiary with a bad trustee and no recourse.

It is, therefore, important that special needs trusts be drafted with this problem in mind.

Trustees must be chosen carefully and, in cases where the beneficiary is of diminished capacity, it should be clear on who else can petition to change the trustee.

The Petrosewicz Law Firm can assist you with special needs planning.  Contact us today at (281) 344-9455 or [email protected]. 

Reference: Wills, Trusts & Estates Prof Blog (Sep. 27, 2017) "Can the Beneficiary of a Special Needs Trust Change the Trustee?"