Home > Personal Finance > 6 Planning Mistakes You Can Avoid If You Have a Special Needs Child

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This is the second of a two-part article about the mistakes that parents of a special needs child often make when they are planning their estates (you can read part one here). Those mistakes 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 six common mistakes I see as an estate-planning attorney and how you can avoid them.

6. Not Properly ‘Funding’ & Maintaining the Plan

When planning for a child with special needs, it is absolutely critical that sufficient assets be available for that person throughout his or her lifetime. In many instances, this requires the use of a liquid asset, like permanent life insurance. Life insurance can be the perfect vehicle for this purpose, particularly if the parents of the child with special needs are young and healthy when they purchase the policy, which means that it won’t cost a lot.

The parents can name as beneficiary of the policy the special needs trust, which could be set up either through their will or in their revocable living trust. Knowing that the policy will secure the financial future of their special needs child, mom and dad can feel comfortable leaving the rest of their estate to their other children.

If the parents’ estate is large enough that estate taxes is a concern — for 2016, this means that a married couple’s estate is worth more than $10,900,000 (single parents need to worry about estate taxes if their estate is worth more than $5,450,000), they should consider having an Irrevocable Life Insurance Trust, or ILIT, own the policy. This trust should have the special needs provisions inside of it, and should also be the policy beneficiary. Parents who want to set up an ILIT should hire an experienced estate planning attorney — it’s a complex legal matter.

7. Choosing the Wrong Trustee

Special needs trusts are very complex, so when parents set one up it’s generally a bad idea to designate a family member or close friend as its trustee. After all, most family members and friends are not experts on this kind of trust, so if they are serving as its trustee, they are at risk of making costly mistakes. For example, the family member or friend trustee might make mistakes when distributing money from the trust on behalf of a special needs child and as a result, they might disqualify him or her from being able to receive important government benefits.

It can be best to hire a professional trustee (a bank or trust company) who understands the myriad, sometimes confusing, and frequently changing rules that apply to special needs trusts. And of course, it’s crucial that whoever is chosen as trustee understands the parents’ objectives, is qualified to invest the trust assets in a manner that is most likely to meet them, and is ethical.

8. Failing to Invite Contributions from Others to the Trust

A key benefit of creating a special needs 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 special needs trust as the beneficiary of the assets in their revocable living trust or will, and/or they can name the special needs trust as the beneficiary of their life insurance policy or retirement benefits.

9. 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 and no longer be 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 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.

10. Creating a Special Needs Trust in a Will Rather Than Using a Revocable Living Trust

Wills as well as trusts established through a will, including special needs trusts, are part of the public record, which means that anyone can find out their details. Furthermore, it’s increasingly common for wills to be posted on the internet, which puts vulnerable beneficiaries, such as someone with special needs at greater risk for being harmed by financial predators. For example, adults with special needs are often targets because they tend to be more trusting, “want to fit in” with their peers and may not be able to distinguish between someone who is looking out for them and someone who wants to take advantage of them.

In contrast, the provisions of a special needs trust that is established outside a will, in a revocable living trust, can remain totally private. In other words, no one other than the people who need to know the trust details can have access to them.

11. Not Keeping the Estate Plan Up to Date

Estate planning rules and regulations change constantly. Therefore, it’s risky business 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 estate planning attorney and that they make all necessary changes. It’s the only way that parents can ensure that their goals and objectives will be met.

This story is an Op/Ed contribution to Credit.com and does not necessarily represent the views of the company or its partners.


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