Legacy Assurance Plan: Incorporating Both Your Children With -- and Without -- Special Needs into Your Estate Plan Asset Distribution

Summary: Estate planning is very important if you’re a parent of minor children. It is still extremely vital even after all your children pass their 18^th birthdays, especially if you have a child or children with special needs. With careful and detailed planning, you can feel confident that you’ve done all you can to provide fully and fairly for all your kids, and that you’ve done all you can protect your child with special needs from a loss of vital benefits as a result of an improper direct receipt of an inheritance.

If you are a parent, especially if you’re the parent of more than one child, chances are you very familiar with having heard, “That’s not fair!” There are many situations in which you may have heard that familiar refrain, but definitely one circumstance is when a child thinks she has received an insufficiently large share of something as opposed to their siblings. Even in estate planning, many parents strive to ensure that they play “fair,” working to create a plan that leaves an equal amount of wealth to each of their children.

This is an understandable, and even noble, goal. If, however, you have among your children some with special needs and some without, then achieving this objective can be substantially more complicated, and can sometimes lead you into bad decisions if you do not plan carefully.

Many parents of children with special needs are familiar with the legal concept of a “special needs trust” (sometimes alternately known as a “supplemental needs trust (SNT).”) If your child with special needs receives need-based governmental benefits, then it is important to ensure that any inheritance you leave for that child does not transfer directly into her name (and cause her to lose eligibility for her needed benefits.) The SNT is a way to do that.

So, if you have two children (one with special needs and one without,) then dividing your assets could be as simple as splitting your assets between your child without special needs and the SNT of your child with special needs, right? Possibly, but proper planning may still be complicated than that. The optimal way to plan to leave a legacy for your children, and leave them the largest one possible, may depend on what type of assets you possess. For example, assume that you own a traditional IRA. Leaving that asset to your special needs child’s SNT could trigger a much higher tax bill than leaving it to your child without special needs. On the other hand, there are other assets, like non-retirement CDs, that may be able to provide a benefit to your child with special needs without causing such a damaging tax ramification. Therefore, maximizing your distributions to your kids may involve leaving all of one asset to one child and all of another to another’s SNT, as opposed to giving 50% of each asset to each side.

Ultimately, the keys are to make sure that you get that SNT put into effect and that you ensure that whatever assets you desire to go to into it are funded in the proper fashion. Additionally, just like with any asset with a death beneficiary designation, take care to give your retirement assets, along with your entire estate plan, periodic “check-ups” to make sure that your estate plan documents and your asset beneficiary designation paperwork remain “in synch” and optimized to carry out your goals exactly in the manner you want.

This article is published by the Legacy Assurance Plan and is intended for general informational purposes only. Some information may not apply to your situation. It does not, nor is it intended, to constitute legal advice. You should consult with an attorney regarding any specific questions about probate, living probate or other estate planning matters. Legacy Assurance Plan is an estate planning services-company and is not a lawyer or law firm and is not engaged in the practice of law. For more information about this and other estate planning matters visit our website at www.legacyassuranceplan.com.