Estate Planning for Special Needs Children

Part of providing comprehensive estate planning for families includes being prepared to address the needs of family members with special needs. Some of the tools used are trusts, guardianship and tax planning, according to the article “How to Help Clients With Special Needs Children” from Accounting Web. Your estate planning attorney will be able to create a plan for the future that addresses both legal and financial protections.

A survey from the U.S. Department of Health and Human Services revealed that 12.8 percent of children in our country have special health care needs, while 20 percent of all American households include a child with special needs. The CDC (Center for Disease Control) estimates that 26% of adults in America have some type of disability. In other words, some 61 million Americans have some kind of disability.

Providing for a child with special needs can be expensive, depending upon the severity of the disability. The first step for families is to have a special needs trust created through an estate planning attorney with experience in this area. The goal is to have money for the support and care of the child available, but for it not to be in the child’s name. While there are benefits available to the child through the federal government, almost all programs are means-tested, that is, the child or adult with special needs may not have assets of their own.

For many parents, a good option is a substantial life insurance policy, with the beneficiary of the policy being the special needs trust. Depending on the family’s situation, a “second to die” policy may make sense. Both parents are listed as the insured, but the policy does not pay until both parents have passed. Premiums may be lower because of this option.

It is imperative for parents of a child with special needs to have their will created to direct their assets to go to the special needs trust and not to the child directly. This is done to protect the child’s eligibility to receive government benefits.

Parents of a child with special needs also need to consider who will care for their child after they have died. A guardian needs to be named as early as possible in the child’s life, in case something should occur to the parents. The guardianship may end at age 18 for most children, but for an individual with special needs, more protection is needed. The guardian and their role need to be spelled out in documents. It is a grave mistake for parents to assume a family member or sibling will care for their child with special needs. The need to prepare for guardianship cannot be overstated.

The special needs trust will also require a trustee and a secondary trustee, if at some point the primary trustee cannot or does not want to serve.

It may seem easier to name the same person as the trustee and the guardian, but this could lead to difficult situations. A better way to go is to have one person paying the bills and keeping an eye on costs and a second person taking care of the individual.

Planning for the child’s long-term care needs to be done as soon as possible. A special needs trust should be established and funded early on, wills need to be created and/or updated, and qualified professionals become part of the family’s care for their loved one.

Having a child with special needs is a different kind of parenting. A commonly used analogy is for a person who expected to be taking a trip to Paris but finds themselves in Holland. The trip is not what they expected, but still a wonderful and rewarding experience.

Reference: Accounting Web (Sep. 13, 2021) “How to Help Clients With Special Needs Children”

Estate Planning for a Second Marriage and Blended Family

It takes a certain kind of courage to embark on second, third or even fourth marriages, even when there are no children from prior marriages. Regardless of how many times you walk down the aisle, the recent article “Establishing assets, goals when planning for a second marriage” from the Times Herald-Record advises couples to take care of the business side of their lives before saying “I do” again.

Full disclosure of each other’s assets, overall estate planning goals and plans for protecting assets from the cost of long-term care should happen before getting married. The discussion may not be easy, but it’s necessary: are they leaving assets to each other, or to children from a prior marriage? What if one wants to leave a substantial portion of their wealth to a charitable organization?

The first step recommended with remarriage is a prenuptial or prenup, a contract that the couple signs before getting married, to clarify what happens if they should divorce and what happens on death. The prenup typically lists all of each spouses’ assets and often a “Waiver of the Right of Election,” meaning they willingly give up any inheritance rights.

If the couple does not wish to have a prenup, they can use a Postnuptial Agreement (postnup). This document has the same intent and provisions as a prenup but is signed after they are legally wed. Over time, spouses may decide to leave assets to each other through trusts, owning assets together or naming each other as beneficiaries on various assets, including life insurance or investment accounts.

Without a pre-or postnup, assets will go to the surviving spouse upon death, with little or possibly nothing going to the children.

The couple should also talk about long-term care costs, which can decimate a family’s finances. Plan A is to have long-term care insurance. If either of the spouses has not secured this insurance and cannot get a policy, an alternate is to have their estate planning attorney create a Medicaid Asset Protection Trust (MAPT). Once assets have been inside the trust for five years for nursing home costs and two-and-a-half years for home care paid by Medicaid, they are protected from long-term care costs.

When applying for Medicaid, the assets of both spouses are at risk, regardless of pre- or postnup documents.

Discuss the use of trusts with your estate planning attorney. A will conveys property, but assets must go through probate, which can be costly, time-consuming and leave your assets open to court battles between heirs. Trusts avoid probate, maintain privacy and deflect family squabbles.

Creating a trust and placing the joint home and any assets, including cash and investments, inside the trust is a common estate planning strategy. When the first spouse dies, a co-trustee who serves with the surviving spouse can prevent the surviving spouse from changing the trust and by doing so, protect the children’s inheritance. Let’s say one of the couple suffers from dementia, remarries or is influenced by others—a new will could leave the children of the deceased spouse with nothing.

Many things can very easily go wrong in second marriages. Prior planning with an experienced estate planning attorney can protect the couple and their children and provide peace of mind for all concerned.

Reference: Times Herald-Record (Sep. 21, 2020) “Establishing assets, goals when planning for a second marriage”

Long Term Care Varies, State by State

What if your parents live in Oklahoma, you live in Nebraska and your brothers and sisters live in New York and California? Having the important conversation with your aging parents about what the future might hold if one of them should need long-term care is going to be a challenge, to say the least.

It’s not just about whether they want to leave their home, reports the article “What is the best state for long term care” from The Mercury. There are many more complications. Every state has different availability, levels of care and taxes. If the family is considering a continuing care retirement community, or if the parents already live in one, what are the terms of the contract?

The differences between states vary, and even within a state, there can be dramatic differences, depending upon whether the facility being considered is in a metropolitan, suburban or rural area. There’s also the question of whether the facility will accept Medicaid patients, if the parents have long-term care insurance or any other resources.

Here’s what often happens: you open up a glossy brochure of a senior community in a warm climate, like Florida or Arizona. There are golf courses, swimming pools and a great looking main house where clubs and other activities take place. However, what happens when the active phase of your life ends, slowly or suddenly? The questions to ask concern levels of care and quality of care. Where is the nearest hospital, and is it a good one? What kind of care can you receive in your own apartment? Are you locked into to your purchase, regardless of your wishes to sell and move to be closer to or live with your adult children?

And what happens if you or a “well” spouse runs out of money? That’s the question no one wants to think about, but it does have to be considered.

For people who move to Florida, which has a very generous homestead exemption for property taxes and no state tax, the incentives are strong. However, what if you become sick and need to return north?

For seniors who live in Pennsylvania and receive long-term care and other services, the well spouse’s retirement funds are exempt for Medicaid regardless of the amount. However, if you move over the state’s border to New Jersey, and those accounts will need to be spent down to qualify for Medicaid. The difference to the well spouse could be life changing.

Delaware and New Jersey have Medicaid available for assisted living/personal care. Pennsylvania does not. The Keystone State has strict income limitations regarding “at home” services through Medicaid, whereas California is very open in how it interprets rules about Medicaid gifting.

The answer of where to live when long-term care is in play depends on many different factors. Your best bet is to meet with an estate planning elder care attorney who understands the pros and cons of your state, your family’s  situation and what will work best for you and your spouse, or you as an individual.

Reference: The Mercury (March 4, 2020) “What is the best state for long term care”