5 Mistakes to Avoid When Developing a Family Plan for A Child with Special Needs

Unintentionally, many families make key mistakes when developing a plan for a special needs child and the protection of their assets. The most important of these mistakes is neglecting to create a will that integrates a special needs trust within the will, or failing to leave assets to a special needs child in a stand alone trust that takes effect upon death of parents. Even if parents have these documents in place, below are mistakes to avoid in order to ensure your special needs child’s receipt of government benefits is not jeopardized.  

1. Custodial Accounts
Custodial accounts, which are often established well before a child’s special needs are recognized, will affect a child’s eligibility to receive of government benefits. Custodial accounts held in a child’s name often became available when the child reaches the age of 21. In most states these funds are often available when the child turns 18, however if these accounts are established they may not eligible at 21 because of these accounts.

In order to remain eligible for Medicaid assistance, a parent must deplete these accounts if they are in excess of $2,000. If the goal is to maintain assets for the benefit of the child’s special needs, they can also establish a stand alone special needs trust. Any gifts can then be directly made to the trust.

2. Extended Family Inheritance or Gifts
Although it may be difficult to have conversations with extended family regarding gifts or inheritance they would like to give a special needs child, it is imperative for everyone’s benefit. If a grandparent or relative wishes to gift a special needs child money or other assets, such an allocation may affect their ability to be eligible to receive government benefits. It is important that relatives gift to an established special needs trust for that child, rather than the child individually, in order to protect the assets. If there are family members that a parent feels may wish to make such a gift, it is important to discuss this issue  with them in order to avoid any loss of assets or benefits.

3. Retirement Plans and Insurance Policies
Insurance policies and retirement plans that are connected to an estate plan are often assumed to pass with the estate. A common mistake people make is not tying these assets to a special needs trust, rather than allowing them to pass to designated beneficiaries, which will occur if not directed to a trust. As with other gifts, if the benefit of such plans is designated to a child rather than a trust, this may inhibit a child’s eligibility to receive government benefits. Therefore any such plans or policies should state the child’s special needs trust as the beneficiary rather than the child individually.

4. 529 or Education Plan
Often times a child has a 529 plan that may affect their eligibility to receive government benefits. A 529 plan is operated by a state or educational institution, and is established to set aside money for a child’s future education. A 529 plan is considered an available asset and would affect eligibility upon the death of the person who established the plan in the child’s favor. It is important, just as with many other gifts, that parents state the child’s special needs trust as the intended beneficiary rather than the child individually.

5. Consult An Attorney
Many parents or guardians often feel they can handle the financial planning of a special needs child, only to regrettably find they were wrong. With something so intricate and important as the future well-being of a special needs child, the process of developing a proper special needs trust is best left in the hands of an attorney who is familiar with special needs trusts. If not drafted properly, a will or established trust may not result in the protection that parents may have intended.

The information on this page is meant to provide a general overview of the law. The laws in your state and/or city may deviate significantly from those described here. If you have specific questions related to your situation you should speak with a local attorney.

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