Estate planning takes on an additional layer of importance for families with a special needs child. Such planning ensures that the child has the necessary financial support and care throughout their lifetime, especially after the parents or primary caregivers are no longer able to provide for them. It’s crucial to create a strategy that addresses the unique needs of the child without jeopardizing their eligibility for essential government benefits such as Medicaid or Supplemental Security Income. Proper estate planning helps in setting up a framework that protects your child’s future, enabling their access to the resources they need to lead a fulfilling life. Additionally, similar planning considerations apply to estate planning for adults with special needs, ensuring long-term stability and support.
For families navigating these important decisions, our New Jersey estate planning attorneys can offer experienced guidance in the realm of special needs estate planning. At The Matus Law Group, our attorneys are well-versed in the nuances of New Jersey laws. We can help you understand the various estate planning options available, such as setting up a special needs trust. This further ensures your child’s inheritance is managed wisely and used in a way that enhances their quality of life while maintaining eligibility for government aid. Contact us today at (732) 785-4453 to schedule a consultation and get started on this crucial path for your family’s future.
Special Needs Trust
Perhaps the most common or well-known estate planning instrument for families with special needs children is the special needs trust. This specific type of trust is designed to meet the child’s financial needs while also ensuring that he or she remains eligible for certain government benefits. As the money in the trust is not considered “available” to the child, it does not “count” for the purposes of government benefits.
The disability trustee is given complete discretion over how much should be distributed to the child. He or she will keep income limitations in mind while also balancing the need to pay for certain care services.
How to Fund a Special Needs Trust
Funding a Special Needs Trust (SNT) is a strategic step for families planning for the long-term care of a child with special needs. Various methods can be employed to ensure that the trust is sufficiently capitalized to meet the beneficiary’s future needs without jeopardizing their eligibility for government benefits such as Supplemental Security Income (SSI) and Medicaid.
One effective way to fund an SNT is through life insurance, which allows parents to direct proceeds into the trust upon their passing. Naming the trust, rather than the child, as the beneficiary ensures the proceeds are directed into the trust without affecting the child’s eligibility for government benefits. When both parents are involved, a second-to-die life insurance policy can be a strategic choice, as it pays out after the second parent’s passing, providing long-term financial security for the trust.
Another common funding source is inheritance. Parents or relatives can bequeath assets to the SNT in their wills, ensuring that funds go directly into the trust instead of to the child. This distinction is critical because an inheritance received directly by the beneficiary could impact their eligibility for means-tested benefits.
Retirement accounts such as IRAs and 401(k)s can also fund an SNT, but tax implications must be considered. Under the SECURE Act of 2019, most inherited IRAs must be distributed within 10 years, potentially creating a tax burden. Naming the SNT as the designated beneficiary of a retirement account allows assets to be distributed under stretch provisions in certain cases, particularly when structured as an accumulation trust.
Gifts from family members are another viable funding option. Direct gifts to the SNT during a donor’s lifetime can grow through investments managed by the trustee. Donors should avoid giving money directly to the beneficiary, as it could affect eligibility for SSI and Medicaid. Families may also use the annual gift tax exclusion to contribute without tax consequences.
Regular reviews and adjustments to the trust’s funding strategy are necessary to account for changes in the beneficiary’s needs, financial markets, and estate planning laws. Consulting a New Jersey estate planning attorney with experience in special needs planning is essential to structuring the trust correctly under state and federal regulations. Proper legal guidance helps ensure that funds serve their intended purpose while preserving government benefits.
Power of Attorney Documents
It is important to incorporate a power of attorney for financial and care decisions into an estate plan for many families with special needs children. This document will appoint someone (other than yourself) to make decisions on behalf of your child related to financial matters or other issues as you designate. This individual can pay bills, manage bank accounts, and ensure that income is coming in correctly.
If your child also has capacity, even if he or she is considered disabled, he or she should also sign a power of attorney as well once they becomes an adult. Creating advanced healthcare directives can also be helpful. This type of document allows someone else to make care decisions on behalf of your child as well.
Letter of Intent
A Letter of Intent, also known as a Letter of Instruction, is a crucial document and addition to a special needs trust. While the trust itself handles the legal and financial aspects of providing for your child’s future, the Letter of Intent focuses on the personal side of your child’s life. This document does not carry legal weight but acts as a detailed guide for the trustee and future caregivers.
The Letter of Intent should include comprehensive information about your child’s daily life, functional abilities, and medical care needs. It should also detail their routines, dietary preferences, and any therapies they require. This document is also an ideal place to describe your child’s interests, likes, and dislikes, which can be vital for maintaining consistency and comfort in their life, especially in your absence.
Moreover, this letter can provide insights into your child’s personality and social preferences, which are essential for anyone stepping into a caregiving role. It helps the trustee and caregivers understand not just what care your child needs but also how to provide that care in a way that respects their individuality and promotes their well-being.
Creating a Letter of Intent is a proactive step in planning for your special needs child’s future. Consulting with an estate planning attorney can help to clearly outline all your wishes and your child’s best interests in this document for those who may come to care for or make decisions for your child.
| Estate Planning Tool | Description | Purpose |
|---|---|---|
| Special Needs Trust | A trust designed specifically for families with special needs children, ensuring financial support while maintaining eligibility for government benefits. | To provide for the child’s financial needs without jeopardizing eligibility for government assistance programs. |
| Power of Attorney | Appoints someone to make financial and care decisions on behalf of the child, especially when they reach adulthood. | Allows for the management of financial matters and healthcare decisions when the child is unable to do so independently. |
| Conservatorship/Guardianship | Grants authority to another individual to make important decisions on behalf of the child, including legal and financial matters. | Provides comprehensive decision-making power for the child’s welfare, often when they lack capacity to make decisions themselves. |
Creating a Conservatorship or Guardianship
A conservatorship or guardianship allows someone else to step in and make all of the important decisions on behalf of your child. This is different from a power of attorney because this individual will have the ability to make all decisions, instead of just the ones that you explicitly set out in your power of attorney documents.
Finding the Right Balance
Every family requires a unique estate plan to fit their needs. However, families with special needs children must take extra precautions that may not be necessary for other families. The Matus Law Firm has specialized experience in this area, so we can help.
Every family requires a unique estate plan to fit their needs. However, families with special needs children must take extra precautions that may not be necessary for other families. At The Matus Law Group, our attorneys have extensive experience in this area and can offer professional assistance. We are here to guide you through each step of the process, helping you put in place the necessary legal protections and financial arrangements. Let us help you create a plan that gives you peace of mind, knowing your child’s needs will be taken care of. Contact The Matus Law Group today at (732) 785-4453 to consult with an experienced estate planning attorney and move forward in planning for your special needs child’s future.
