Special Care: Should You Disinherit Your Child with Special Needs? Aug 4, 2013
Disinherit my child? How could I do that? What would people think? I don't even know where I'd begin. How, exactly, would I do that?
These are some questions that may come to mind if someone suggests you disinherit your child with special needs. Its intimidating advice – and wrong. And what you may imagine are answers to those questions might keep you from taking any action whatsoever. That's not good. You need to find the right answers, so take a breath and read on.
Financial Planning Update, supported by MassMutual Life Insurance Company. Originally published in EP Magazine, August 2013
What's the reason behind this advice?
"The main driver is to preserve needs-based government benefits your child may be receiving or might need to apply for later in life," says Michael P. Cahill, CFP who has earned the Chartered Special Needs Consultant (ChSNC)1 designation and is a Special Care Planner with WestPoint Financial Group2 in Indianapolis, Indiana, a general agency of Massachusetts Mutual Life Insurance Company (MassMutual). "To be eligible for Supplemental Security Income [SSI] and other needs-based government benefits, a person's assets generally can't be more than $2,000. If you don't plan ahead for how your child will inherit assets from you, you risk your child's eligibility to receive those benefits."
With needs-based benefits, parents whose child is receiving them may believe they have little for their child to inherit. "In that case, the parents might think no action is necessary," cautions Cahill. "When many individuals pass away, they'll have more than $2,000 in money and assets, which can include their house, car, personal belongings, household goods, bank accounts, IRAs, cash, and more."
Another reason to take action is to secure your child's long-term personal welfare. How will he or she be cared for, personally and financially, after you've died? "Often parents will trust that their other children will take on that responsibility," says Cahill. "They trust in the moral obligation, of course, that siblings will use their inheritance or their own assets to take care of their brother or sister with special needs. If they know their children well, that trust is probably well founded, but other life issues come into play. What if the siblings face their own financial challenges? What if their inheritance is divided in a divorce settlement or portioned out to creditors?" Additionally, parents have to consider whether or not their children have the knowledge and experience to manage the financial and medical concerns of their sibling.
Take the first step.
"Gather all your financials," suggests Cahill. Make a list of bank accounts, insurance policies, investments, IRAs, 401(k)s, employee benefits such as group life insurance or health savings plans, your wills, any policies or accounts for which you or your children may be a named beneficiary (such as your parents' life insurance policies or wills), and anything else related to your financial picture, including a list of creditors and monthly expenses. "Check your account balances and gather paperwork for everything you have," says Cahill, "so you know not just what you have but also the details of what you have."
Find the professionals who can help you.
It's important to work with an estate planning attorney who's familiar with state and federal Medicaid law and has experience helping families with special needs. You also will want to have a financial professional with knowledge specific to special needs, such as a Special Care Planner. A Special Care Planner can recommend an attorney and direct you to resources that can benefit you, such as support groups or The ARC organization in your region.
Write your will.
Regarding the disinheritance issue, one of the most important documents for parents to consider is a will. If you have wills, review them to ensure they're written for proper distribution of your assets and are aligned with your state's regulations regarding Medicaid and SSI benefits. If you don't have wills, get them written. "If you don't have a will when you die," explains Cahill, "the laws of your state will dictate what happens to your assets, and that may result in adversely affecting your child's eligibility for SSI and Medicaid."
Check all beneficiary designations.
As mentioned earlier, review all legal and financial documents that have named beneficiaries. Be sure your child with special needs isn't named as a primary or alternate beneficiary (some documents automatically direct benefits to all children/legal heirs equally if the named beneficiary is deceased). Check with family members and friends who may have assets they'll leave to your child and advise them of the precautions they should take and why.
Develop a strategy for the whole family
A financial professional can work with your legal advisor to help you review your wills, beneficiaries, assets – your entire financial picture. They'll ask questions regarding your current needs and your financial goals so you can develop a complete strategy that will work for your family now and properly address how to distribute your assets to your children upon your death. If you think you don't have the discretionary income to create a strategy, your financial professional can help you find ways to spend less, save more, and put some measures in place that may help you begin to accumulate assets.
Establish a Special Needs Trust
If appropriate for your situation, a special needs trust (SNT) can be established to accept assets gifted to or inherited by your child with special needs. Trust funds can supplement your child's lifestyle (pay for things other than food and rent), and if your child predeceases his or her siblings, they may inherit the funds for their own use, depending on the type of trust established. There are many types of trusts, but your legal and financial team can help you decide which best meets your needs.
Trusts might be funded with life insurance proceeds, inheritances designated by a will, assets from a pension, IRA, or other vehicle with a beneficiary feature, court awards, or even gifts of money from friends and family members. The recipient of the funds must be the trustee of the trust established on behalf of your child, not your child.
The specifics and the language of trust, as well as the trustee(s) you choose, are vitally important. The structure of the trust will guide the trustees in how to use the trust, but the trustee(s) must have your confidence to invest the funds properly and act in your child's best interests.
As you can see, there's no need to disinherit your child with special needs. With some work and planning on your part, you can assure that all your children can share the assets you leave for them.<< Back to FINANCIAL PLANNING Page