Special Needs Planning
When a family includes a disabled individual, sometimes referred to as a “person with special needs,” estate planning needs to address the complexities, as described in a recent article titled “Customize estate plan to account for disabled beneficiaries” from The News-Enterprise. Failing to do so can have life-long repercussions for the individual.
This often occurs because the testator, the person creating the estate plan, does not know the implications of failing to take the disabled person’s situation into consideration, or when there is no will.
The most common error is leaving the disabled beneficiary receiving an outright inheritance. With a simple will, or no will, the beneficiary receives the inheritance and becomes ineligible for public benefits they may be receiving. The disruption can impact their medical care, housing, work and social programs. It may also lead to the loss of their inheritance.
If the disabled beneficiary does not currently receive benefits, it does not mean they will never need them. After the death of a parent, for instance, they may become completely reliant on public benefits. An inheritance will put them in jeopardy.
A second common error in special needs planning is naming the caregiver as the beneficiary, rather than the disabled individual. This causes numerous problems. The caregiver has the right to do whatever they want with the assets. If they no longer wish to care for the beneficiary, they are under no legal obligation to do so.
If the caregiver has any liabilities of their own, or when the caregiver becomes incapacitated or dies, the assets intended for the disabled individual will be subject to any estate taxes or creditors of the caregiver. If the caregiver has any children of their own, they will inherit the assets and not the disabled person.
The caregiver does not enjoy any kind of estate tax protection, so the estate may end up paying taxes on assets intended for the beneficiary.
The third major planning mistake is using an outright bequest in a will instead of a trust – either a testamentary trust in a will or a stand along intervivos (living) trust – as the primary planning method. A Special Needs Trust is designed to benefit a disabled individual to protect the assets and protect the individual’s public benefits. The trust assets can be used for continuity of care, while maintaining privacy for the individual and the family.
Planning for individuals with special needs requires great care, specifically for the testator and their beneficiaries. Families who appear to be similar on the outside may have very different needs, making a personalized estate plan vital to ensure that beneficiaries have the protection they deserve and need.
BOOK A CALL with me, Ted Vicknair, Board Certified Estate Planning and Administration Specialist, Board Certified Tax Law Specialist, and CPA to learn more about estate planning, incapacity planning, and asset protection.
If you liked this article, “Special Needs Planning” read also these additional articles: What Needs to Be Reviewed in Estate Plan? and Researchers Look to Reduce the Risk Of Women Developing Dementia and How Do I Use Deceased Spouse’s Life Insurance? and Is there a Connection between Vitamin Deficiency and Dementia?
Reference: The News-Enterprise (March 15, 2022) “Customize estate plan to account for disabled beneficiaries”