Parents of a child with special needs face unique challenges when planning their estates, and unless they address them correctly, they risk making mistakes that could have long-term, costly consequences for their child.
For example, they may make the child ineligible for important federal government benefits once he or she becomes an adult, and they may leave their child without the financial resources he or she needs to live the same kind of life they provided when they were alive.
The mistakes that parents of a special needs child often make when they are planning their estates can have long-term negative consequences for the child and significantly impact his or her lifestyle once the parents are deceased or become incapacitated and can no longer look out for their special needs son or daughter.
Here are some of the common mistakes and how you can avoid them.
1.Disinheriting the Child
Parents of children with special needs typically rely on Federal Government programs, like Centrelink and Medicare, to help pay for their basic needs such as medical treatment, food and accommodation. Therefore, to ensure that their special needs child will be eligible to participate in these programs, parents are sometimes advised to disinherit him or her.
However such Government programs typically finance a very minimal standard of living, and unlike adult children without special needs, special needs children may not be able to supplement those benefits through paid work.
A far better option is for parents to set up a Special Disability Trust to benefit their special needs child. This trust lets parents leave their special needs child an inheritance without jeopardizing his or her eligibility for Government benefits. Furthermore, a Special Disability Trust can also benefit a special needs child should his or her parents become incapacitated. Anyone who wants to provide for a child with special needs — like grandparents, for example — can establish a Special Disability Trust or contribute to one that has already been set up.
A Special Disability Trust is complicated, so parents should not try to establish one themselves; they need the help of an experienced lawyer who specialises in estate planning.
2.Waiting Too Long
None of us know when we will die or if we will become incapacitated, so it’s essential that we plan our estates sooner rather than later. Ignoring this advice can have very negative consequences for the people we leave behind, including minor children and especially minors with special needs. Among other things, parents’ failure to plan can mean that their children don’t have the financial resources they need to continue living the kind of life they enjoyed while their parents were alive. Don’t put this off!
3.Failing to Make Provision for the Leftover Funds in the Trust
Another frequent mistake occurs when a Special Disability Trust fails to include a provision for what happens to the remaining trust funds after the special needs beneficiary has died. A suitable clause provides that any money remaining in the trust when the beneficiary dies is paid back to the family of the parent rather than the government or under the Will of the beneficiary.
4.Choosing the Wrong Trustee
Special Disability Trusts are very complex, so choosing the right person as trustee is important – someone who understands the sometimes confusing rules that apply to special needs trusts. Whoever is chosen as trustee should understand the parents’ objectives, and is able to invest the trust assets in a manner that is most likely to meet them, and is trustworthy & ethical.
5.Failing to Invite Contributions from Others to the Trust
A key benefit of creating a Special Disability Trust is that the beneficiary’s extended family and friends can make gifts to it while they are alive or at their deaths. For example, they can name the trust as the beneficiary of the assets in their Will, and/or they can name the trust as the beneficiary of their life insurance policy or retirement benefits. There are limits upon the amounts which can be placed in the trust.
6.Relying on Siblings to Use Their Own Money to Care for a Special Needs Brother or Sister
Some parents assume that their other children will use their own assets or inheritances to provide for their special needs sibling. Although this may be a successful temporary strategy, assuming those other children are financially secure and have money to spare, it’s a risky one long-term. For example, one or more of those children may develop financial problems (divorce is commonly disruptive in this way) and become no longer able to help support their special needs sibling, or they may decide that their priorities have changed and so they want to use their financial resources in some other way. Or, maybe the sibling(s) who has been providing the support dies or becomes incapacitated while the special needs sibling is still alive.
Also, when parents rely on their other children to pay for the needs of their special needs sibling, they have no assurance that those children will care for that child as thoughtfully and completely as they did while they were alive.
Finally, it’s not unusual for the siblings of a child with special needs to feel the burden of a great sense of responsibility for their brother or sister. Sometimes this can feel like a big emotional burden and even cause them to resent their special needs sibling. Therefore, it’s always best if parents assume responsibility for the future care, housing and well-being of their special needs child through their estate plan and not assume that their other children will take care of it.
7.Not Keeping the Estate Plan Up to Date
Estate planning rules and Government regulations change constantly. Therefore, it’s dangerous to assume that an estate plan developed to provide for the needs of a special needs child will continue to meet that goal over time. Therefore, it’s essential that the parents of a special needs child revisit their estate plan frequently with the help of their specialist estate planning lawyer and that they make all necessary changes. It’s the only way that parents can ensure that their goals and objectives will be met.
SPECIAL REPORT “Special Disability Trusts in South Australia”
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