Estate Planning for Families With Special Needs Children: What You Need to Know

Special needs trusts are one of the most important tools in estate planning for children with special needs. These trusts allow parents or other family members to set aside funds for the child’s benefit without disqualifying them from means-tested (low-income dependent) government programs like Medicaid. The trust can pay for additional expenses and items not covered by public benefits, such as medical care, education, and recreational activities, enhancing the child’s quality of life.

Types of Special Needs Trusts

There are several types of SNTs:

• First-party SNTs are funded with the beneficiary’s own assets/funds from sources such as an inheritance or personal injury settlement. These trusts must comply with specific legal requirements, including a provision that any remaining funds after the beneficiary’s death be used to reimburse Medicaid for services provided.
• Third-party SNTs are created and funded by someone other than the individual with disabilities, such as parents or grandparents. These trusts are often used to pass down family assets without affecting the beneficiary’s eligibility for government benefits. The funds are designated for the beneficiary’s extra needs, complementing existing public programs.
• Pooled SNTs are managed by nonprofit organizations and pool/merge resources from multiple beneficiaries. They may be ideal for those who do not have enough assets to justify a standalone trust yet still need to protect their benefits as they offer professional management and reduce administrative costs.

How to Establish an SNT

Establishing a special needs trust involves several steps, beginning with selecting the appropriate type of trust based on the beneficiary’s situation. The process typically involves:

• Choosing Trustees: The trustee is responsible for managing the trust’s assets and making distributions for the beneficiary’s benefit. When selecting a special needs trustee, it is important that you/your family choose someone trustworthy, with financial acumen and an understanding of the beneficiary’s needs.
• Drafting the Trust Document: Special needs trusts must meet certain legal requirements under state and federal laws to be valid and effective. To avoid mistakes or omissions that could invalidate the trust, it is important to seek assistance from a legal professional with experience in special needs planning when drafting the trust document. They can ensure that the trust document complies with all statutory requirements and clearly outlines how the trust should be administered without any ambiguity.
• Funding the Trust: Once established, the trust must be funded with the appropriate assets, whether through direct contributions, inheritance, or settlements.

By carefully setting up an SNT, families can provide financial stability/security for their loved ones with disabilities while maintaining their access to essential government programs. However, it is also important to be aware of the state-specific requirements for these types of trusts even after their creation. 

For example, in New Jersey, SNTs must also adhere to ongoing compliance requirements even after they are established to ensure they remain valid and continue to protect the beneficiary’s eligibility for government benefits. These compliance requirements involve regular oversight, proper management of trust assets, annual accounting, and detailed record-keeping. 

Our experienced special needs planning attorney at the Law Offices of Wenarsky and Goldstein LLC understands how these requirements work and can help you understand how to meet them after your special needs trust has been established. 

Guardianships

Establishing guardianship becomes necessary when a child with special needs turns 18 and is legally considered an adult but cannot make decisions independently. A court-appointed guardian, often a parent or family member, can manage the individual’s personal and financial affairs to ensure that the child continues to receive proper care and protection into adulthood.

Powers of Attorney

As children with special needs reach adulthood, they may need to establish powers of attorney, if they have the mental capacity to do so, to allow their parents to continue managing their healthcare and financial decisions (if they are mentally competent).

A healthcare power of attorney authorizes someone (the attorney or agent) to make medical decisions, while a financial power of attorney allows for the management of financial matters. These tools are crucial for maintaining continuity in decision-making and ensuring the child’s needs are met.

Powers of attorney, however, are only available to persons with sufficient capacity to understand and execute them.  If the individual lacks such capacity, a guardianship is required.

Wills

Wills play a crucial role in estate planning by specifying how a parent’s assets should be distributed after their death. For families with special needs children, wills often include provisions for transferring assets to a special needs trust rather than directly to the child to maintain eligibility for government benefits. Additionally, wills can designate a guardian for minor children, ensuring that a trusted individual will care for them if the parents are no longer able to do so.

At the Law Offices of Wenarsky and Goldstein LLC, we strive to create a comprehensive plan that includes all these elements for each special needs planning client to help them prepare effectively for the future care of their special needs children. By doing so, we help provide continuity and security for them, ensuring their peace of mind.