Your first instinct as a parent may be to divide assets equally among children in your will. However, if your family includes a special needs child, that decision could have a negative impact on your child’s future.
Parents do their best to let their offspring know that they are loved, each in their own unique way. When the family includes a special needs child, their needs are different. However, they are not loved any less than their siblings. The same holds true for estate planning for a special needs family. According to Tickertape, “Estate Planning for Special Needs Children: Trying to Be Even-Steven?”, estate distributions with a special needs child typically need to be different than distributions to their siblings. It’s not about fairness, it’s about good planning.
Children with special needs are typically eligible for state and federal benefits that provide them with assistance for their long-term support. Among the most common are Supplemental Security Income (SSI) and Medicaid. In many states, SSI may qualify children for Medicaid, or Medicaid comes automatically with SSI. These are need-based benefits that are means-tested. SSI recipients have a strict assets threshold of $2,000 for an individual. If a special needs child gets an inheritance, it might push him or her, above that ceiling. This could result in ineligibility for the program benefits that might be used to cover medical, therapeutic, or housing needs.
When money is paid directly to the child as beneficiary, it can cut SSI benefits. The same is true, if the special-needs heir disclaims the inheritance.
Government benefits may be retained, if an inheritance is set up in a Special Needs Trust (SNT), which is designed to help a beneficiary with special needs and preserve government aid while protecting assets. The trust allocates inheritance assets to the child with special needs, but it’s via a third-party.
However, there might be tax implications. While the inheritance itself isn’t taxed, the income that it generates in a special trust is typically taxable at trust tax levels. Creating an SNT can be complicated, and the rules can vary from state to state. Speak to a qualified trust attorney to be sure that all income is reported properly and there are no deductions left on the table.
Be certain to consider the net tax implications and eligibility requirements of any government programs, when you create an estate plan. Talk with your children about your plan and the decisions you are making with regard to the future care for your special needs child. This will help everyone in the family be better prepared and ready to work together to maintain the integrity of the family, which is part of your legacy.
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