Feldman, Kramer & Monaco, P.C. | <strong >Planning for a Child With Special Needs</strong ><br >
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Planning for a Child With Special Needs

May 2021 | Frank Buquicchio, Esq.
If you have a child with special needs, you likely have a heightened awareness for planning. There are many things to consider not only for now, but for when your child is older.

In New York State, when an individual turns 18 years old, he or she is presumed to be a competent adult. As a parent, your rights to make decisions for your child (special needs or otherwise) come to a screeching halt. You no longer have the right to speak or consult with your child’s doctors or other providers; you also cannot handle their financial matters.
There are two options when it comes to these issues:

1. If your now adult child is able, he or she should sign advance directives such as a health care proxy and comprehensive durable power of attorney. The health care proxy appoints an agent to make all health care decisions for a person who becomes able to make those decisions for themselves. The power of attorney allows an appointed agent to handle all financial matters.

2. If the child lacks the requisite mental capacity to sign a health care proxy or power of attorney, a guardianship proceeding will need to be commenced. This is a court proceeding where someone (typically a family member such as a parent) applies to the Court to become legal guardian of the person (for health matters) and of the property (for financial matters).
Another important item to consider when planning for a child with special needs is government benefits such as SSI and Medicaid. These are programs that provide money (SSI) and services (Medicaid) to the disabled. However, these programs have strict eligibility rules regarding how much the person can have in assets and monthly income.

When it comes to your plan, you need to make sure your estate planning documents such as a will or living trust have the appropriate provisions to protect a child with special needs – so they do not lose their benefits. A “supplemental needs trust” (sometimes referred to as a “special needs trust” or “SNT”) is a type of trust that can be established to protect your child and preserve their government benefits.

Different Types of SNTs
Testamentary SNT
– This is a supplemental needs trust that is established under your last will and testament. It does not exist until you pass, at which time the SNT is “funded” as part of the probate proceeding.

Third Party SNT – This is a supplemental needs trust that is established as a living trust, meaning it is established and “funded” during your lifetime. It can be funded with assets from you or any other person (such as a grandparent or godparent) who wishes to provide for a loved one with special needs in a protective way. This type of trust cannot be funded with assets of the disabled person who is the beneficiary of the trust. When the beneficiary of the trust passes, you can decide how the remainder of the trust assets (if any) are distributed. A Third Party SNT can be either revocable or irrevocable.

First Party SNT – This is a supplemental needs trust that is also a living trust. It is similar to the Third Party SNT with one very significant difference; when the beneficiary of the trust passes, any assets remaining in the trust must first be “paid back” to the government (i.e., Medicaid) before they can be distributed to any other beneficiaries. This type of trust is almost exclusively established with the assets of the person with special needs (such as monies received from a lawsuit or inheritance). A First Party SNT must be irrevocable and can only be set up by the individual, their parent, grandparent or legal guardian, or by court order.
Let’s look at two examples of how these trusts would work. We recently met with clients who have three children; the youngest child, Amy, is 19 years old and on the Autism spectrum. Amy is receiving Medicaid and SSI benefits. The clients told us their two older children, Jess and James, are both extremely responsible, caring and loving, and the clients have been assured Jess and James will take care of Amy when they pass.

When discussing their wills, the clients wanted to leave their entire estate to Jess and James because they know Amy cannot own assets without losing her benefits. They are also concerned that Amy may not be able to manage assets. We explained to the clients that even though Jess and James may be trustworthy and do the right thing by Amy, there is a more protective way to provide for Amy without jeopardizing her benefits.

The supplemental needs trust provision can be incorporated into their wills so that whatever share or amount they want to leave for Amy can be left to the trust for her benefit. Jess and James can be named as trustees and use the money for Amy’s benefits in a way that preserves her important government benefits.

For another example, let’s look at “Peter,” whose grandfather passed recently and left him a bequest of $100,000 in his will. Unfortunately, the will did not have any supplemental needs trust provisions.

Peter is on community Medicaid and is rightfully concerned that he is going to lose his benefits. He has two options: (1) He can establish a First Party SNT and put his inheritance directly into the trust. (NOTE: If Peter is unable to establish the trust, it could be established as discussed above). Peter would have to name a trustee to manage the trust for his benefit. However, when Peter dies, there would be a payback to Medicaid if there is any money left in the trust. (2) Peter could transfer (give) his inheritance to a trusted family member or friend who would then establish a Third Party SNT.

When you have a child or other loved one with special needs, it is extremely important to consult with an experienced attorney who can help you develop and implement a plan to provide for your child in a protective way.

If you have any questions about the information discussed in this article, please contact your Legal Service Plan’s National Legal Office at 800-292-8063.