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When Your Child Has Special Needs

Legal Matters to Consider

Kate and John have three children. One of them has been diagnosed with autism, and is enrolled in Henrico County Public Schools with an individualized education plan (IEP) in place. Kate and John struggle with how to take care of her special needs while also meeting the needs of their other two children. They want the best for each of their kids. They are lucky to have the kids’ grandparents living nearby to share their love and concerns. Much of Kate and John’s time is spent raising their young family, but in the back of their minds, they can’t help but worry about what will happen to their family if they pass away unexpectedly, or before their daughter with special needs.

Planning for a child with special needs might involve establishing a special needs trust for the child, either as a stand-alone trust or as a trust established by a will. The trust can be created by the parents or grandparents, and it can allow family members to contribute to the trust if they wish. The goal is to provide for the child throughout the child’s life. It can state that anything not used for the child during his or her lifetime will then go to the siblings. Often, it is recommended that the parents purchase life insurance to fund the trust so they can provide adequately for the child, and also leave other assets as an inheritance for their other children. One option for life insurance is “second to die” insurance, which is less expensive than regular life insurance since the policy benefits will be payable to the trust only after both parents have passed away.

Even though parents can establish trusts with themselves or other family members as trustees or backup trustees, they often ask if there is a simpler way, such as giving everything to a sibling and counting on that sibling to take care of the child with special needs. Sometimes that works, but what if the sibling dies, or becomes incapacitated or divorced, or gets sued because of an automobile accident? A better and less risky approach is to make sure the child is protected through a trust set up solely for the benefit of the child with special needs.

Many people do not understand the importance of government benefits for a child with special needs, and how exacting the rules are for maintaining those benefits. Often, a loving grandparent or aunt or uncle will leave money to the child or to an ordinary trust for the child without being aware that this could cause the loss of eligibility for government benefits. For example, the child might have hundreds of thousands of dollars in medical bills that Medicaid would cover as long as the child remained eligible for this needs-based program, but an outright inheritance could affect eligibility. To complicate things further, the status of Medicaid is in flux, not only in Virginia, but across the nation.

The goal is to provide for the needs of the child that are not covered by government benefits without causing the child to lose benefits such as Medicaid or other programs that may be available. To achieve this, the trust must be carefully worded, and the trustee must be careful to manage the trust in such a way as to preserve the entitlement to benefits. Consequently, the wording of the special needs trust often states that the trust can only supplement, and not supplant, government benefits.

There are many organizations that have useful resources, and a consultation with an attorney can help a parent determine how to best plan for their children and create the necessary documents. This often involves developing an overall estate plan for the family that includes a special needs trust accompanied by a letter of intent providing future guidance for the trustee. For some families, rather than creating their own trusts, the best answer is to use a pooled trust, which is something else that an attorney can help you consider.

Phoebe P. Hall is an elder law, estate planning, and family law attorney who has been practicing law since 1969. She is CEO of Hall & Hall, PLC and sits on the board of visitors for Virginia Commonwealth University. A Richmond resident, she has two children and three granddaughters.
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