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January 15, 2020 Feature

For Children with Special Needs : Special Needs Trusts and Other Planning Options

Rebecca A. Iannantuoni & Keith Bradoc Gallant

Parents enjoy a certain expectation that, at some point, their children will assume responsibility for themselves. This expectation transforms when a child has special needs. The future care and well-being of a differently abled child can be an overwhelming concern for parents, particularly when coupled with the very real day-to-day anxieties of managing the child’s special diets, treatment protocols, therapies, and specialists and advocating for educational, living, and vocational needs.

Parents’ Concerns: Physical, Emotional, and Financial

These future-care concerns fall into two linked but distinct general areas: physical and emotional care on the one hand and financial concerns on the other.

Physical and Emotional Care

  • Who? Who will assume the role of primary caregiver after the parents’ deaths (or disability)? Is it appropriate to place this responsibility (and burden) on a sibling or another family member? So often this question is deeply seeded in family dynamics and requires a great deal of open and honest dialogue before making assumptions as to who will serve in this successor role.
  • How? How will the successor-caregiver know the child’s likes, dislikes, wants, hopes? A letter of intent, described below, is an excellent mechanism for parents to impart their historical understanding and knowledge of the special needs of their child. The process of creating this letter of intent can be cathartic and tends to offer the parents a different outlet for being heard. Will the successor be able to manage? Nothing is more frightening to parents than to think that their best-laid plans will not succeed. However, there is a certain reality to this concern in these situations.
  • Where? Where will the child live and with whom? Often an adult child with special needs has a long-established—and sometimes hard-fought-for—network of supports (e.g., day program, work, community involvement, medical providers), and recreating this network can be difficult, especially in a crisis situation.

Financial Concerns

  • Government Programs. Will government programs be available to assist with the care of the child after the parents’ deaths (or disability)? If so, will these programs be suitable and/or sufficient? Often they will not be—the landscape and funding of government programs is perpetually in a state of flux given state and federal budget deficits. Working with a financial planner to evaluate the costs of care becomes a key component of planning for children with special needs.
  • Special Needs Trust. Should there be some type of funding through an estate plan (i.e., a special needs trust) to supplement government programs? If so, how much is enough, and who should be trustee? The decision as to who shall serve as trustee is as complicated as the issue of who will serve as the successor primary-caregiver—but for different reasons. If government programs are to be used, the named trustee must be willing to learn and understand the eligibility criteria for any means-tested programs and the impact, if any, of distributions from the special needs trust.

The Parents’ First Step Should Be to Hire a Special Needs Attorney

Despite these challenges, with proactive and mindful planning, parents can create and provide a more certain future for their child (as well as meeting their planning goals for the rest of their family.) The first step to this planning (after the worry has subsided) is to engage the services of an attorney whose practice focuses on special needs planning.

Special needs planning is a subset of traditional estate planning. The notion that estate planning is essential only to families with significant wealth is a common misperception. In fact, organizing an efficient and appropriate allocation of family assets that meets the needs of all members—especially when one child has special needs—is a goal that should be shared by all, regardless of the size of the estate.

Why Leaving an Estate to Siblings without Disabilities Won’t Work

Too often parents of a child with special needs mistakenly believe they can resolve these planning issues by simply leaving their estates to their other children. They reason that the child with special needs should not receive property because he or she lacks the ability to manage it or that they will be taken care of by public benefits or, most unrealistically, that their other children will assume full financial responsibility for their sibling. This informal approach can create more problems than it solves. The main problem is that, because the recipient of the property (i.e., the child without special needs) will own it outright, there is no way to ensure the money will be used to benefit the child with special needs, no matter how principled and purposeful the intent may be.

Moreover, with this approach, the funds could be subject to that recipient’s creditors or other beneficiaries. For example, a premature death could result in the property passing to the recipient’s heirs and completely bypassing the child with special needs. Or the property could pass to the recipient’s spouse in the event of a divorce. There is no legal recourse in the event the money is spent on something other than the disabled individual’s needs because the money is owned by the recipient outright (regardless of intent). Additionally, in certain circumstances, if the child with special needs had a legally enforceable interest in the property, the circumvention of that interest could actually disqualify this child from public assistance benefits.

The Special Needs Trust: An Essential Planning Tool

For all of these reasons, the SNT has become a very important estate planning tool in such circumstances. Generally speaking, a trust is just a type of property ownership wherein one person, the trustee, manages the property for the benefit of another person, the beneficiary. The trustee must follow the terms and conditions set forth in the trust agreement as to whether, how, and when to distribute the trust funds to or for the beneficiary. The SNT fulfills two primary functions: first, it is a mechanism to manage property for someone who may not be able to do so for him- or herself due to a disability and second, and perhaps more importantly, it preserves the beneficiary’s eligibility for public assistance (e.g., Medicaid, Supplemental Security Income (SSI), public housing, food and/or energy assistance, etc.), and it allows those benefits to be supplemented with the assets held in the trust.

What Can and What Can’t the SNT Pay For?

Administration of a special needs trust (SNT) must be handled on a case-by-case basis. Each case varies depending upon the specific and changing needs of the individual beneficiary. In addition, state variations in entitlement programs and developing case law create a fantastic maze of potential predicaments, dilemmas, and quandaries in administration for the trustee. The most important issues arise when defining “special needs” and “basic support.” When these terms are properly defined, an SNT can pay for the following.

“Special Needs”: SNT Distributions (Under Most State and Federal Programs)

  • Purchase of a residence
  • Private school tuition (especially special education)
  • Health and life insurance premiums
  • Entertainment and recreation (movies, plays, sporting events, hobbies)
  • Vacation travel (technically not lodging or food)
  • Transportation
  • Household goods
  • Telephone, including cell phone
  • Medical costs not covered by other benefit programs, including personal care services (e.g., home health aides)
  • Income taxes, trustee fees, attorney fees, trust administration costs

“Basic Support”: SNT Distributions (Under Most State and Federal Programs)

  • Rent
  • Utilities
  • Groceries or meals
  • Clothing
  • Medical expenses covered by a benefit program
  • Cash distribution to beneficiaries (cash payments should be to third parties for payment of appropriate services or goods)

Government Benefits: The Safety Net for People with Special Needs

Public assistance benefits programs have become the financial and healthcare safety net for most of our country’s individuals with special needs. A troubling dilemma is created as healthcare costs continue to rise and as sweeping changes are proposed to curb the growth of the government programs that pay for them. This dilemma is further complicated by the fact that individuals with special needs (like the general population) are living longer (and often in the community).

Each family has its own facts and each public benefit program has its own rules, all of which may affect the drafting, funding, and administration of SNTs. SNTs can be utilized in a variety of situations. These include the situations in which parents plan for a disabled child, as discussed above; a disabled individual receives a windfall from a lottery, inheritance, or successful personal injury claim; or one spouse plans for a disabled spouse.

In general, SNTs fall into two main categories: third-party trusts that one individual creates and funds for the benefit of another (i.e., a parent plans for a disabled child, one spouse plans for a disabled spouse, a grandparent plans for a disabled grandchild, etc.), and self-settled trusts that beneficiaries create for themselves with their own money (e.g., from a personal injury settlement, a lottery prize, or an inheritance.) Obtaining advice from a skilled legal practitioner will help avoid unnecessary pitfalls with future eligibility for these programs and minimize potential crises for successor caregivers.

Special Needs Planning and Divorce

Another context wherein special planning considerations are made for disabled individuals is divorce. When the parents of a child with special needs decide to end their marriage, a variety of factors must be taken into consideration when agreeing on a divorce settlement involving a child with special needs. These are quite different from the concerns that other families confront in such situations.

Custody and decision-making authority become complex issues because the needs generally extend beyond the child’s eighteenth birthday (and often last for the duration of the child’s lifetime). Visitation also requires a heightened level of thoughtfulness. Children with special needs often have very structured schedules and require predictability within their environment. Frequent changes, even between two “homes,” can cause extraordinary distress. The child’s team (i.e., teachers, support staff, psychologists, medical providers, behaviorists) should be consulted, as appropriate, and engaged in the ultimate determinations so as to provide a consistent support system to the child across all aspects of life.

In addition to these concerns related to the child’s physical and emotional care, there are other atypical considerations when it comes to the child’s financial support. A final divorce order or agreement for parents with special needs children will often include details on both the custodial and noncustodial parent’s support obligation for child’s lifetime (as opposed to terminating at the age of majority). Unfortunately, the standard child-support guidelines do not generally cover the many added costs and expenses that come with raising a child with special needs. The permanent or long-term expenses of a child’s serious medical conditions and disabilities will require consideration. The likelihood and costs of a future residential placement (or a live-in caregiver) will need to be contemplated, along with whether there is any potential eligibility for public assistance benefits that might offset these costs. These types of large expenses require extensive planning.

An additional consideration includes post-majority support payments for a special needs child who is a recipient of public assistance benefits programs. After the age of majority, these support payments belong to the special needs child and, as a result, are counted as their personal income (and assets) for purposes of continued eligibility. These post-majority payments must be carefully coordinated with the income and asset rules of those programs to avoid inadvertently jeopardizing eligibility. Thought and planning should be given to whether the circumstances support a divorce decree directing the noncustodial parent’s child support payments to a self-settled special needs trust for the child’s benefit. (These payments cannot be directed to a third-party special needs trust because, as noted above, the payments belong to the child.)

Raising a child with special needs can test the very depths of personal tenacity and grit. And, when thinking and worrying for the future of that child, there can be no substitute for proactive and mindful planning led by the empathetic hand of a skillful special needs practitioner.

A good plan today is better than a perfect plan tomorrow.

—George S. Patton

Practice Point: The Letter of Intent

Often a successor guardian/caregiver is a family member, but unless that caregiver has lived in the home with the child, even that person does not know the ins and outs of daily living to which the parents have grown accustomed. These family members do not know the names, phone numbers, email addresses, and locations of every service provider or practitioner. They may not be familiar with the exact diagnosis of the child or the nuances that come with that diagnosis. A letter of intent is a great way to communicate every detail to the future caregivers of a child with special needs.

The letter of intent is not a legally binding instrument, but, rather, it is an “instruction manual” of substantive and meaningful guidance addressed to future caregivers. Although there is no set format, the following topics are typically included.

  • Family Information/History: Parents’ birthplaces, marriages, divorces, addresses; child’s siblings, extended family, and close family friends; pets.
  • General Overview: Personality traits of the individual with special needs; explanation of the “why” of the document; parents’ dreams and goals, as well as those of child; the emotions and color of the child’s life.
  • Medical History: Doctors and specialists with diagnoses, dates, and contact info; past surgeries; any routine procedures currently performed; where, who, and why.
  • Dietary Needs: The individual’s “likes” and “dislikes,” allergies, sensitivities and intolerances, texture aversions, and other restrictions.
  • Daily Schedule: Specific daily events from the moment of waking until the bedtime routine and sleeping; assistance with activities of daily living; independence in grooming and hygiene; if there are aversions to specific tasks, how these are handled.
  • Education: Historical information relevant to the current education plan, including the recent IEP and contacts for advocates, school administrators, etc.; the individual’s desires for future educational needs.
  • Benefits: Source and amount of any government benefit; redetermination periods.
  • Employment: Details of past work history; current work; desires for future employment; the child’s expressed interests; a list of contacts or organizations connected with child or that may possibly be connected with transition into employment.
  • Residential: Are the caregivers to stay in the home? How will the cost be covered? Does the child have an interest in living independently and the ability to live independently or in a group home? Location is important, as well, in relation to schools and social activities. What are the parents’ hopes for the child’s future? Any information related to current living status; the parents’ descriptions of what they want the future to be.
  • Social and Religious: What activities does the child enjoy participating in or watching? Any physical limitations? Favorite place to go? Religious preference? Does music or singing affect child negatively or positively? Any contacts related to social and religious activities, as well as transportation options.
  • Behavior Management: “Triggers” that affect the child negatively and positively? How is the child soothed in a negative/tense situation? What techniques/interventions work best? What makes him or her excited? What indicators should a caregiver look for to understand the mood of the child? Again, contact info for any specialists or therapists.
  • Final Arrangements: Is there life insurance or funeral insurance in place for the child? Are there plans in place with funeral homes, places of worship, monuments, crematory, etc. If none, what are the parents’ core beliefs and wishes for such plans?
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Rebecca A. Iannantuoni is a partner in Day Pitney’s Individual Clients department in the firm’s New Haven office. Her practice focuses on representation of fiduciaries, estate administration, and advising clients on all aspects of estate planning, particularly with regard to elder law and persons with special needs. Rebecca has four children, the youngest of whom has profound medical and cognitive special needs. She is a Visiting Clinical Lecturer at Yale Law School and Legal Supervisor of the Palliative Care Medical Legal Partnership with Yale Law School and Smilow Cancer Center at Yale New Haven Hospital.

Keith Bradoc “Brad” Gallant is also a partner in Day Pitney’s Individual Clients department in New Haven. His practice includes trust and estate planning and administration, special needs planning, planning for same-sex couples and their families, planning for incapacity, and all aspects of probate litigation. He is a former President of the Connecticut Bar Association, Fellow and Regent of the American College of Trust and Estate Counsel (ACTEC), the ACTEC Program Committee Chair, and a former chair of the ACTEC Elder Law Committee.