Bequests To Disabled Children Should Be In Special Trusts

MARCH 20, 2000 VOLUME 7, NUMBER 38

Suppose your adult son is disabled and receiving both financial and medical assistance from the government. While you do not consider yourself wealthy, you have worked hard all your life and managed to build a modest estate. If you leave your disabled child his share of your estate he will lose his government benefits, and the money you saved for him will soon be consumed in paying his medical bills and care costs. Is there any way to help your son without disrupting his benefits?

Parents of disabled children face difficult choices when they complete their own estate plans. On one hand it might seem reasonable to simply disinherit the disabled child and rely on the public benefits system to provide for their future needs; the parent’s estate may have a larger beneficial effect if it is distributed to the non-disabled children instead. Parents may also choose to rely on those non-disabled children to help provide for their disabled siblings with some of the money they inherit. Depending on individual family dynamics, disinheritance of the disabled child may seem like the most logical choice.

Most commonly, though, parents of disabled children want to treat all of their children equally—or at least come as close to equal treatment as is possible. In most cases, however, any share of the parent’s estate which will be attributed to the disabled child should be held in a trust that provides only for “luxuries” for that child. Such a trust is sometimes called a “Special Needs” trust, and is established to provide assistance but not interfere with eligibility for continued public benefits like Supplemental Security Income (SSI) and Medicaid (or, in Arizona, AHCCCS or ALTCS).

Though recent changes in federal and state law have made the rules more difficult for some Special Needs trusts, those rules do not affect trusts set up for inheritance purposes. A properly drafted Special Needs trust is allowed to provide additional therapy, entertainment, education, travel, assistance with medical care, companionship and a host of other benefits to make life more comfortable for the disabled child without disrupting SSI or Medicaid eligibility. But such trusts are not automatic—if you fail to plan in advance, your child’s share may result in a loss of SSI income, medical care and even eligibility for group home placement and other assistance.

It is important to get good legal advice before establishing a Special Needs trust. For example: if benefits come solely from Social Security Disability Insurance (SSDI) and the federal Medicare program, a different trust arrangement may be more appropriate. Your attorney needs to be familiar with government programs, and must have complete information before making a recommendation.

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