Estate Planning for Parents with Special Needs Children

 Posted on August 14, 2014 in Estate Planning

Estate planning can be confusing with all the rules and laws to consider. But if you are a parent of a special needs child, estate planning can be even more complicated because of the worry over who will look out for your special needs adult child when you are gone. Also, the cost of care for a special needs child can be astronomical. For example, a study done by the University of Pennsylvania and the Children's Hospital of Philadelphia concluded that the lifetime cost for a person with autism that involves an intellectual disability is $2.4 million.

There are special considerations a parent has to address when estate planning. An adult child who receives Supplemental Security Income (SSI) and Medicaid benefits has a limit on the amount of financial resources they can have. Currently, a person on SSI cannot have more than $2,000 in liquid assets. The limits for Medicaid depends on the state in which the child lives.

However, parents can set up special trusts which will ensure the child will be taken care of, yet will not interfere with any benefits they receive. One type a parent can consider is called a testamentary trust and is often referred to as a third-party trust. This is a trust that is set up for the future, but does not have current funding.

Another option is a first-party trust. This is a trust that is set up using the special needs child's own funds, such as a gift or inheritance. One of the major differences between a third-party trust and a first-party trust is that upon the death of the special needs child, any money that is left in a first-party trust goes directly to the government for reimbursement of Medicaid expenses. With a third-party trust, there is no government payback and the person who originally set up the trust decides where the leftover funds go.