Leaving assets directly to a special needs child upon your death can endanger their continuing receipt of their public benefits. If you have a special needs child who is receiving public benefits such as SSI or Medicaid, then you should consider establishing a special needs trust in your estate plan.
To qualify as a special needs trust, the trust may not distribute assets directly to the special needs child, or allow the child to access trust funds without the express consent of the trustee. The trustee, in turn, is generally forbidden from distributing assets to the child if it would render the child ineligible for public benefits.
Special needs trusts can be set up by parents or grandparents as part of their estate plan. A trust can be funded from life insurance proceeds or other separate assets. A special needs trust can also be established with the child's assets, such as compensation from a personal injury lawsuit.
The income or principal that gets distributed to the special needs child from the trust cannot be used to pay for items that can be paid for with public benefits, such as basic medical care, food, and housing. Funds from the trust are to be spent for recreational activities such as summer camp, elective surgeries that insurance does not cover, or for travel. In other words, a special needs trust is meant to provide funds for activities that enrich the child's life experiences or are considered luxuries.
You can create a special needs trust with a standalone trust agreement, with a provision in a living trust agreement or in a will. However they are established, special needs trust provisions must be carefully drafted using language not found in a typical children trust to ensure the trust does not inadvertently disqualify the beneficiary from receiving government aid. Consulting with the proper attorney is an important first step.
Be careful with naming the special needs child as a beneficiary on insurance, bank, investment and retirement accounts, and investment properties. Use a trust instead.
Coordinate your relatives' estate planning with your planning for a special needs child. Gifts and inheritances to the child should go to a trust.
If the child is or could become a beneficiary of a trust that already exists, for example, grandpa's trust set up when he passed, the trust can now be changed in Texas and converted to a special needs trust.
We will discuss whether you should establish an ABLE account.
ABLE (Achieving a Better Lifestyle Experience) accounts are now allowed in Texas. They operate somewhat like a Roth IRA for the person with special needs in that they are funded with after tax dollars and investment earnings accumulate tax free. But withdrawals can be made anytime tax free for many purposes, such as education, housing, employment training, transportation, health - prevention and wellness, oversight and monitoring, and funeral and burial expenses. Non qualifying withdrawals are subject to income taxes and a ten percent penalty. There are limits for annual and lifetime contributions and how much can be held in the account at any time.
ABLE accounts are established through the Texas Comptroller's Office. We can direct you to further resources and information about how to set up and fund an ABLE account.
The Capelle Law Firm provides comprehensive estate planning services in Plano, Frisco, Collin County, Denton County and the Dallas area. Call 214-387-6040 now to schedule a complimentary, no obligation consultation