Legal Decisions Involved with Planning for a Family Member with Special Needs

The process of future planning is far more complicated in families where a beneficiary struggles with a physical or cognitive disability or mental illness. Decisions about how to best provide lifetime help and care for that individual can be overwhelming for the entire family.

At Altair’s recent Spring Forum, “Future Planning for Special Needs in Families,” estate planner Larry Rivkin reviewed some of the legal issues parents face in ensuring the lifetime care needs of a family member with physical or cognitive challenges. Rivkin reviewed not only legal options but considerations for maximizing benefits to the individual with special needs in balance with any other siblings or beneficiaries.

Equal Versus Fair: The Impact of Inheritance Decisions

The challenge of how to divide assets among children is all the more complicated when one child has special care needs. Particularly if the child will be unable to support him or herself financially, parents have to determine the best way to support their care needs while also providing something to their other children. Several asset distribution options for families that even if not equal will likely be recognized by all beneficiaries as fair include:

  • Divide assets equally. “Hopefully there is enough money in the family that there will be enough for everyone, said Rivkin, an attorney at Rivkin & Rivkin Estate Planning in Lincolnshire, Illinois. “If not, maybe the siblings will step forward.”
  • Provide base amount for child with special needs and divide balance equally among other children. “Another way to do it would be to say ‘We’re going to put a base amount aside for this child.’ At least then we know they’re provided for.”
  • Provide base amount for child with special needs, provide equalizing amount for other children and divide balance equally.
  • Fund base amount with insurance. “So often in the world of estate planning we’ve thought about married couples’ second-to-die life insurance to provide liquidity in estate taxes,” Rivkin told the forum attendees. “This is a different sort of need, for married couples to have second-to-die or for single people to have a policy maybe to cover that base amount.”

There are many more ways, Rivkin said. What’s important is to consider solutions that protect all the children or grandchildren. “You want to be mindful that your other children don’t walk away after your death feeling slighted and resentful.”

ABLE Accounts: A 529 Plan for Children with Special Needs

Thanks to a law called the ABLE Act established by Congress at the end of 2015, the 529 college savings program was expanded to allow tax-free accounts to be used for children with a disability. Since a college education may not be a good fit for some children with special needs, the act enables parents to save money in a tax-free account as long as the funds are used for certain types of expenses (“qualified expenses”).

Rivkin said an ABLE account provides another means to get assets for an individual with special needs, without requiring a trustee to pay for expenditures. “It gives them a little bit more independence,” he said.

Highlights of the program as summarized by Rivkin:

  • Tax-advantaged accounts for individuals with “marked and severe functional limitations” beginning before age 26.
  • Earnings are exempt from income tax if account is used only for “qualified disability expenses.”
  • Annual contribution limit from all sources of $15,000
  • First $100,000 in account exempt from SSI resource limit
  • Possible Medicaid reimbursement at death
  • First states launched ABLE account programs in 2016 – rules liberalized in 2018 tax act
Special Needs Guardianships Vary Depending on Needs

The process to set up a guardianship can be long and difficult and it is important to understand the options in deciding whether to seek one for your child once he or she turns 18.

There are two main types of guardianship, as Rivkin noted: guardian of the person, which entails making health care, housing, food and clothing decisions, and guardian of the estate, or managing the assets and other financial matters of an individual with a disability or a minor.  One person can serve as both.

An individual can serve as a plenary guardian, acting with complete authority if an individual is deemed unable to make appropriate decisions for themselves, or as a limited guardian, with modified authority to make some decisions but not others.

Alternatives to guardianship exist in many cases and should also be considered, according to Rivkin. For financial decisions, a property power of attorney, living trust or representative payee may be suitable. For medical care, a health care power of attorney or health care surrogate could be considered.

Life Care Plan Preserves Your Input For When You’re Gone

Parents and siblings carry much knowledge about family members with special needs – habits, routines, doctors, therapists, what works, what doesn’t go over so well. This information can be simple as “They’re much better off if they go to sleep before 9 o’clock” or advice and observations that are more complicated. It’s important to not just keep it in your head but put it in writing and share it while you are alive and healthy, Rivkin said.

An online search for “life care plan” or “letter of intent” for special needs will turn up suggested formats. Alternatively, a sample life care plan is available at Rivkin’s firm’s website, “Get it down on paper,” he said. “So if you’re not there one day, and you’re relying on another family member or a fiduciary, they can at least have some of the knowledge that you have in your head to work from.”

To learn more about our recent Spring forum on Future Planning for Special Needs in Families and listen to Larry Rivkin’s full presentation, click here.

The material shown is for informational purposes only and should not be construed as accounting, legal, or tax advice.  Altair Advisers LLC is a registered investment adviser with the Securities and Exchange Commission; registration does not imply a certain level of skill or training.  While efforts are made to ensure information contained herein is accurate, Altair Advisers cannot guarantee the accuracy of all such information presented.