Most parents recognize the need for an estate plan to look after the welfare of their children. But when the child has physical, emotional or mental challenges, careful estate planning can be even more crucial. One major reason to create a proper estate plan is to preserve a special needs child’s eligibility for government benefits and other programs.
There are traps that could jeopardize eligibility for those benefits. One of those is beneficiary designations in retirement plans. Beneficiary designations in retirement savings plans can provide great flexibility for passing on an inheritance: You can designate primary, secondary, and contingent beneficiaries, or even designate groups of people like “surviving children” or “surviving grandchildren.” However, the convenience and flexibility provided by leaving funds in retirement plans – or other tangible assets – to children with special needs can have a dramatic unintended financial impact on those receiving needs-based government benefits.
For example, say your son requires special care. He qualifies for Medicaid and receives aid to help with daily living and medical needs. You want to leave him money to help make his life better; but if your retirement funds pass directly to your son, receiving those assets may disqualify him for Medicaid benefits. Since in general terms only a home, a car used as transportation for medical care, and a small amount of cash are exempt from Medicaid calculations, inheriting a large sum of money could negatively impact his Medicaid benefits.
The best way to avoid this is to create a Special Needs Trust and place or leave the assets intended for that child in the Trust. A Special Needs Trust is designed to supplement benefits received from government programs. Instead of paying for medical care, for example, the trustee can then use those funds for the best use and comfort of the beneficiary and pays for things Medicaid will not pay for.
Setting up a Special Needs Trust requires the assistance of a qualified Estate Planning Attorney. Retirement plans and gifts can then be left directly to the Trust, which could be used for clothing, entertainment, vacations, and other discretionary spending for the benefit of the child.
Properly formed Special Needs Trust can be used to pass on retirement funds or other assets without creating negative repercussions. Your goal is to help your child with special needs without compromising his or her benefits, so make sure your best intentions are actually realized.
Investment Advice is offered through Belpointe Asset Management, LLC. Insurance products are offered through Belpointe Insurance, LLC. Additional disclosures are available at: http://belpointe.com/disclosures This information provided herein is educational in nature and not designed to be a recommendation for any specific investment product, strategy, plan feature or other purposes. It should not be considered legal or financial advice. This is not suggesting a specific course of action or any action at all. Communications such as this are not impartial and are provided in connection with advertising and marketing. Prior to making any investment or financial decisions, an investor should seek individualized advice from a personal financial, legal, tax and other and other professional advisors that take into account all of the particular facts and circumstances of an investor's own situation.