No. It is not necessary to disinherit your special needs child to protect their benefits. A better approach is creating a special needs trust to hold their inheritance.
All parents worry about protecting their children if the unthinkable happens. But those worries are compounded for parents of children with special needs who may never be able to support themselves.
These children often rely on Medicaid and SSI for medical care and financial support. Both programs are means-tested. If a beneficiary has more than $2,000 in countable resources, eligibility can be reduced or lost. For that reason, many parents worry about leaving an inheritance to a child who depends on these programs. They often ask if they should disinherit their child to protect their government benefits.
This question often comes from a place of deep love and concern. Parents want to make sure their child is gets the financial support they need without jeopardizing benefits. But disinheriting a child, no matter how well-intentioned, can lead to unintended and sometimes heartbreaking consequences.
Fortunately, there is a better way to plan.
The Risks of Disinheriting a Child With Special Needs
At first glance, it might seem like a good solution to disinherit a child with special needs. But in reality, it exposes the child to serious risk.
When parents leave assets outright to someone else with instructions, spoken or implied, to use those funds for their child’s benefit, they lose control over that money.
- Giving your assets to someone else gives them legal ownership of those assets. They may decide they’d rather not honor their commitment to provide for your child, or perhaps not to the extent you had hoped.Text analysis tools
- Even if you trust them to honor their commitments, life sometimes gets in the way. Because those assets legally belong to them, they can be exposed to their personal liabilities. For example, suppose they get in a terrible accident and seriously injure someone else. The assets earmarked for your child could be exposed to a judgment for those claims.
- What happens if the people to whom you left the assets die before your child? Since they have legal ownership of those assets you left them, those assets will pass to their heirs, who may not have made a commitment to you to care for your child.
Each of these scenarios can leave your child without the financial security you meant to provide.
How a Special Needs Trust Works
A Special Needs Trust, also known as a supplemental needs trust, gives you a way to leave an inheritance to your child without disqualifying them from receiving Medicaid and SSI. You can create a special needs trust in your will or trust directing that all property intended for your child pass in trust rather than outright.
Special Needs Trusts are discretionary trusts. The trustee has absolute discretion about what distributions to make. Because your child does not own those assets and cannot demand payments, they do not count toward the $2,000 resource limit.
Trust funds do not replace governement benefits. They supplement them. The trustee you appoint to manage funds can use trust funds to pay for things that Medicaid and SSI don’t cover, such as education and tutoring, technology, therapies, personal care items, recreation activities, internet and phone service, transportation, and travel costs to visit family.
You can choose a family member, a trusted friend, or a professional fiduciary as Trustee. A family member or trusted friend knows your child best and may serve as trustee without charging administrative fees. A professional trustee brings expertise and objectivity, but will change ongoing fees for their service. Who you choose requires careful consideration because they will be managing your child’s inheritance for years or even decades.
What Kind of Property Can Fund a Special Needs Trust
Special needs trusts can be funded with a variety of assets. Many parents direct proceeds of life insurance policies or retirement plans to the the trust by beneficiary designation. That’s a good way of making sure the trust is
It’s also prossible to transfer real estate and other financial accounts to the trust.
A Special Needs Trust is a Safer, More Loving Way to Plan
Disinheriting a child with special needs might seem like a good way to protect their benefits. But in reality, it often leaves them vulnerable.
A Special Needs Trust preserves their eligibility for means-tested benefits and ensures that your child’s inheritance will be used exactly as you intend.
If you have a child with special needs, a Special Needs Trusts attorney can explain all your options. With the right plan, you can protect public benefits and provide the extras that bring comfort, dignity, and stability for your child’s future.
