Most people assume estate planning is only about what happens to your stuff after you die, but actually, it’s about more important things than that. Estate planning should be used to make sure your family, especially your child with special needs, is provided for if you die or become disabled.

There are three ways in which you can plan for either of these tragic events in your life:

1. Create a Network of People You Trust

In order for your entire special needs estate plan to work properly, you will need to select several people who you trust. These people will be advocates, guardians, trustees, and caregivers for your child with special needs.

You should make primary selections and backup selections. Ask the people you select if they would be willing to accept the responsibility of the role before you put their name in any legal documents.

2. Create Proper Legal Documents

The network of people you trust will have no legal authority to care out your wishes unless you sign proper legal documents. The drafting of these documents should be done by an attorney in your state who understands how to plan for a child with special needs.

Unfortunately, cheap online documents and forms for “typical” families can’t include all the customization required for families who have children with special needs. I’ll go in more depth about the various legal documents in a future lesson called 10 Essential Special Needs Estate Planning Documents.

3. Create a Source of Funds

If you don’t provide your advocates, guardians, trustees, and caregivers enough money to work with, you’ll make their lives and your child’s life much more difficult.

If you don’t have a lot in savings right now, consider paying for an inexpensive term-life insurance policy. Whatever you do, it’s important to coordinate your source of funds with any special needs trust you set up.

Now that you know the basics, click here to go to the next lesson about special needs estate planning mistakes to avoid.

Disclaimer: This list applies specifically to Texas, but most of these documents (or something similar) are used in all states. You should always discuss your situation with your own attorney to determine what would be best for you and your family.

1. Last Will and Testament

I’m sure you already know about wills, but the truth is just about every adult should have a will. It makes things go a lot smoother after you die, if you’ve made your wishes known about who should receive your property.

Someone might say, “I don’t need a will. I’m using a trust instead.” However, even if you have a trust, you still need a will to take care of any assets that have been left out of your trust. Plus, as I will explain below, most people (at least in Texas) are better off creating a will instead of a trust.

2. Self-Proving Affidavit

This is a document that can be stapled to your will, and it’ll make probate simpler and cheaper.  It basically allows your personal representative to probate your will without having witnesses testify in court that they saw you sign it. Many do-it-yourself wills are missing this affidavit.

3. Revocable Living Trust

Some people create a trust to be their primary method of transferring assets instead of using a will. This is not the same as a special needs trust. The primary reason to do this is when you have a really large estate and probate is very expensive in your state.

In Texas, this is not an issue with most estates. If you write in your will that you want your estate independently administered, then the cost of probate and probate lawyers is usually less than the cost of setting up and managing a trust for the rest of your life.

4. Special Needs Trust

This is the way to provide financially for your child with special needs for their entire life. It allows your child to benefit from government programs they might need like Medicaid without disqualifying them from those programs.

Without a special needs trust, many people with disabilities must live below the poverty level and cannot afford to buy everything they need.

5. Declaration of Guardian

You probably know that one of the reasons to do estate planning is to name guardians for your children in case something happens to you. In Texas, your “Declaration of Guardian” can be in a will or in a separate document.

What you might not have heard of though is you should also name a guardian for yourself in case you become disabled.

6. Letter to Your Child’s Guardian

This isn’t technically a legal document with legal authority or power. However, if someone else must become your child’s guardian, this document will tell the guardian everything they need to know about how to take care of your child with special needs.

In the end, providing financially for your child is important, but what really makes them happy day-to-day is being loved and cared for by someone who really understands their wants, needs, desires, hopes, and dreams. Think about detailed instructions that you might leave for a babysitter, except these are instructions you’d want a caretaker to have for your child’s entire life.

7. Durable Power of Attorney

This is a document in which you give another person power to act on your behalf in various financial transactions. This document is helpful if you become disabled or are away on a long trip when some business needs to be dealt with.

One of the powers a parent of a child with special needs should consider putting in their power of attorney is the ability to transfer property into a special needs trust for the benefit of their child.

8. Medical Power of Attorney

Also known as a healthcare power of attorney, this document gives someone the power to make medical decisions for you if you’re unable to make your wishes known. If you haven’t signed one of these and your family can’t agree on what should be done, everyone may end up in court.

9. HIPAA Authorization

This document allows your representative to see your medical records and talk to the doctor about your medical condition.

Even though giving someone a medical power of attorney should be enough, some doctors might be reluctant to talk to them about your medical situation without a signed HIPAA authorization.

10. Physician’s Directive (Living Will)

If you were in a vegetative state and the doctors said there was no hope for your recovery, would you have a strong feeling about how long you should receive life support?

Don’t assume your family knows what you would want. It’s best to put your wishes down on paper so that they don’t struggle or fight about what to do.

#1 – Deciding Not to Create an Estate Plan Because You’re Not Rich

If I had a dollar for every time somebody said this, I’d be rich! Welcome to the club. That does not mean you shouldn’t create an estate plan though, especially if you have a child with special needs.

First of all, deciding how to distribute your money is only part of the planning process. The part is planning for the possibility that you might become disabled yourself as well as how your child be taken care of if something happens to you.

Second, since you probably don’t know when you’re going to die, you don’t know how much money you will have when your die. In fact, if you’re able to buy a relatively inexpensive term-life insurance policy, as I generally recommend, hopefully there will be quite a bit of money available to take care of your child.

#2 – Giving Your Property to Other People with the Understanding That They Will Take Care of Your Child with Special Needs

Assuming that the person you’ve selected is responsible and trustworthy enough to handle such an arrangement, it is rarely a good idea for the following reasons:

• Usually, the person who is holding the property doesn’t understand the laws about government benefits and what can disqualify a person from those benefits.
• It may become too much of a burden and strain on their relationship.
• The money could be lost because of lawsuits, bankruptcy, or divorce.
• Medicaid could refuse to pay benefits saying it’s part of a constructive trust that does not meet the requirements of a special needs trust and therefore disqualify him or her from the program.

#3 – Leaving Your Money/Property Outright to Your Child with Special Needs

The most recommended way to leave money to a child with special needs is through a special needs trust.

Leaving your money to a special needs trust stretches it farther because SSI and Medicaid will pay for your child’s basic food, shelter, and medical needs while the money in the trust can be used to pay for things government benefits don’t cover.

If you don’t put the money in a special needs trust, it will disqualify your child from government benefits. Then, all of the money will be used up on food, shelter, and medical needs.

When the money is gone and your child is completely broke, he or she will have to qualify for SSI and Medicaid again only to live below the poverty level the rest of their lives. (SSI currently pays it’s recipients $674 per month.)

#4 – Using Do-It-Yourself Forms or Purchasing One From an Online Form Company

While these forms may work in certain states for the most simple estate plans. They shouldn’t be used by you for the following reasons:

1. Your estate plan goes up in complexity exponentially when you have a child with special needs. You aren’t just planning your future. You are planning your child’s future as well.
2. There are many different form variations to consider, and selecting the right ones is nearly impossible unless you have a lawyer help you.
3. A generic “one-size fits all” form may be harmful to your child because state laws differ on what language is acceptable in estate planning documents and especially a special needs trust.
4. All forms will need to be customized to your unique situation to be effective.

#5 – Adding a Special Needs Trust to an Estate Plan You Already Have

Unfortunately, in most cases you’ll need to completely redo your estate plan if you need to set up a special needs trust for your child. The reason is a special needs trust must be tightly integrated with the rest of your estate distribution plan for it to be effective.

#6 – Planning Once and Never Thinking About It Again for the Rest of Your Life

Every special needs estate plan should be reviewed regularly. Any time the law, your family, or your property changes, your estate plan may need to change to continue to be effective.

Thankfully, keeping your estate plan updated doesn’t have to be as much of a hassle as it sounds. Many estate planning attorneys now offer maintenance programs for their clients which provide an easy and inexpensive way to make sure your documents stay current.

Conclusion

Now that you know what mistakes to avoid, it’s time to get into the nitty-gritty of legal documents. Not that I expect you’ll draft your own documents, but it’s good to have an idea of the documents you’ll need when you hire an attorney.

Click Here to Go to the Next Lesson About Legal Documents

There is not one best type of special needs trust. The best one for you will depend on your situation and what you’re trying to accomplish. Here are some guidelines you can use to make sure you’re setting up the correct one.

If you’ve done much reading at all, you’ve probably heard of special needs trusts referred to as either first-party, third-party, testamentary, standalone or pooled.

Two Main Categories of Special Needs Trusts

The important thing to know is there are really only two main categories of special needs trusts. There is the first-party trust and the third-party trust. All the other “types” of special needs trusts are different ways of creating these two main types.

1. The First-Party Special Needs Trust

A first-party trust should be used when the money in the trust will come from the beneficiary of the trust (the person with the disability). Without putting it in a first-party trust, the money or property will cause the person to lose government benefits he or she needs to survive.

In unplanned situations, like when a person receives a personal injury settlement or an unexpected inheritance, a first-party trust may be the only option. However, whenever possible they should be avoided because of their high cost and the requirement that Medicaid must be paid back after the beneficiary dies.

2. The Third-Party Special Needs Trust

A third-party trust should be used when the money in the trust will come from someone other than the beneficiary of the trust. This is the type of trust parents, grandparents, and friends should use when they want to give money or property to a child with special needs either by gift or inheritance.

The primary advantages of a third-party trust are: 1) they’re generally less expensive than first-party trusts and 2) they are not required to payback medicaid after the beneficiary dies. Instead, the money can flow to other family members or a charity of your choice. As a result, a third-party trust is usually more desirable than a first-party trust, if the situation allows for it.

Other Types of Special Needs Trusts

Now that you know about the two main categories of special needs trusts, we are ready to talk about the various ways first-party and third-party trusts can be created. These types of trusts are known as testamentary, pooled, and standalone.

The Testamentary Special Needs Trust (a Special Needs Trust in a Will)

If you have a child with special needs, a very common way to create a third-party trust is to put it in your will. To be more accurate, actually the instructions for creating the trust are in your will. After you die, your personal representative will create the trust and fund it with your assets according to the instructions.

This method of creating a special needs trust is usually less expensive than creating one that is standalone (discussed below). The downside of it is no one else (like grandparents) can make a gift to the trust until after your death because the trust doesn’t come into existence until you die.

The Pooled Special Needs Trust

Pooled trusts can be first-party or third-party trusts, but the defining characteristic of a pooled trust is they are made up of a group of people that join one large special needs trust to have their money managed as a group.

Pooled trusts are especially useful when the amount of money to be put in the trust is relatively small (generally less than $200,000). Many bank trustees can’t accept a single special needs trust with a small amount of money because there isn’t enough money in the trust to pay their fee.

The disadvantages of pooled trusts depend on the pooled trust agreement and the particular pooled trust. Generally though, they can’t give as much personal attention and service to each beneficiary. It’s also important to read the trust agreement to see what happens to your money after the beneficiary dies.

The Standalone Special Needs Trust

These are best for third-party and first-party trusts when there is a significant amount of money to be put in the trust from an estate or insurance policy.

A big advantage of a standalone trust is they are setup today, so others can make gifts to them at any time. This allows family members to make present gifts as well as gifts to the trust in their will. In addition, you can customize the wording of a standalone trust  to make sure your child is taken care of the way you want.

Depending on your situation, there may also be some tax or probate benefits to a standalone trust.

The disadvantage of a standalone trust is they are not cheap to setup up or manage.

The Final Analysis

Which trust is best for you depends on your situation. An attorney with your best interests in mind should discuss each of these options with you and help you make the best decision for your family. If your attorney doesn’t understand all the types of trusts on this page, then look for another attorney who does.

A special needs trust is a trust setup for a person with a disability to pay for things over and above what government benefits cover.

And a “trust” is just a legal arrangement where property is given to a trusted person (the trustee) with the understanding that they will use the property for another individual’s benefit.

Why is a Special Needs Trust Necessary?

People who have a disability often need to rely on government programs to meet their basic needs. These needs are primarily medical care, food, and shelter. Medical care tops the list because it’s so expensive and there’s usually no other way to pay for it.

How a Special Needs Trust Can Help You Keep Medicaid

Depending on the type of Medicaid you’re talking about, the eligibility requirements are different. However, the important point to make here is that whether you can receive Medicaid or not depends on your income and assets.

For example, an individual must have less than $2,000 dollars of countable assets to qualify. Otherwise, they will be kicked off of Medicaid and not be able to get the medical care they need. For more information on Medicaid and Medicaid eligibility for various states

How a Special Needs Trust Works

The solution to the problem and the best way to maximize your family’s financial resources is to create a special needs trust. Then, you can put any gifts and extra money you have in the trust, and when it comes time to qualify for Medicaid, the money will not disqualify your child.

Once money is inside the trust, it can be managed properly and used for your child’s needs over and above what government programs can provide. This is is the best way to give your child a full and satisfying life where they can reach their greatest potential.

The next lesson in the Special Needs Trusts 101 series will help you determine whether or not to setup a special needs trust for your child. Click here to read it now.

Are You Willing to Take the Risk of Not Planning?

Can you see into the future? That’s really the only way to know for sure whether to create a special needs trust for your child.

Since seeing in the future is probably not your talent (and if it were you wouldn’t be reading this), let me ask you this: “Is there any possibility that your child will not be able to support himself as an adult?”

If your answer to that question is “yes,” then you should probably create some form of a special needs trust. It’s the safest thing to do, unless you want to gamble on your child’s future.

Hope for the Best, But Plan for the Worst

Please understand me. I’m not asking you to be a pessimist about the future. I hope that your child will reach his or her greatest potential and live as full and independent a life as possible. However, if you want to be sure your child is taken care of no matter what happens, you’ll have to plan for the worst.

If you die before putting a plan in place, it’s nearly impossible to predict how things will turn out, but it’s safe to say that your child’s life won’t be as good as it could have been.

The reality is that some form of planning will be done one way or another. You can either do it yourself right now and save your family money and grief, or you can let someone else stitch a plan together without you.

A plan thrown together in an emergency will no doubt cost more money and be less desirable for your child. The reason is that some legal strategies cannot be used after the fact. In addition, YOU are the best person to create a plan for your child that will make them happiest. Why leave that to someone else who doesn’t know your child as well as you do?

How to Get Started

Don’t know what a special needs trust is? Read “What is a Special Needs Trust?” to find out more. Otherwise, you should know that a special needs trust is just one part of a larger special needs plan which you can start by yourself right now. It’s easy to do by requesting my free Special Needs Planning Step by Step e-Course.

When you are ready to create a special needs trust, I recommend that you hire an attorney to do it for you. You would expect me to say that since I’m an attorney, right?

By all means, educate yourself, but use that education to find an expert who can handle the nitty-gritty details.

Special needs planning is the process of planning for the future of your child with special needs so they will always be loved, cared for, and live a full and happy life reaching their greatest potential regardless of what happens to you.

You see, if every parent of a child with special needs could ensure that they live longer than their child, then there would be little need for special needs planning. Of course, that’s not what anyone hopes for.

Instead, special needs planning allows you to truly hope that your child will have a long and happy life without worrying about what will happen if something happens to you.

All Special Needs Plans are Unique

When you first start thinking about creating a plan that gives you peace of mind about the future, it’s important to realize that not just any plan will do. A plan that gives you a false sense of security about the future is probably worse than no plan at all.

Remember, as with most things in life, there are no shortcuts or easy cookie cutter plans. Your family and your child are unique, so your plan will not look exactly like any other family’s plan you know.

In addition, you can’t just hire someone, pay them a lot of money, and expect the perfect plan to be produced without any involvement on your part. You will need to be actively involved in the creation of your plan for it to be any good. In fact, there are some things that ONLY YOU can do!

Areas Your Plan Should Cover

• Housing – Where will your child live?
• Food – What food will they eat? Who will prepare it?
• Medical Care – Where will they get the medical care they need? How will they pay for it?
• Clothing – Where will they get their clothing? Who will make sure they are properly clothed?
• Finances – Where will they get the financial resources to pay for everything they need?
• Recreation – What will they do for fun? Who will make sure they are able to do the things they like to do on a regular basis?
• Travel – Will they ever get to travel anywhere? Will they need to travel to see part of their family? Will they ever move to a different state?
• People – Who will take care of them and make sure your plan is being followed?
• Estate Planning – What will happen to your child if you become disabled? What should be done with any inheritance you or your family members want to give your child?
• Government Benefits – Will your child qualify for government benefits? How will you ensure that they won’t be kicked off those programs?
• Likes/Dislikes – Does anyone besides you know what your child likes and dislikes? Who will make sure that your child is happy?
• Spirituality – Will your child have a particular religion? Who will take them to religious services?

Do I Really Have to?

Sounds like a lot of work doesn’t it? If only you didn’t have a thousand other things to do right now. Well, to help you decide if you really need to go to the trouble, go to part 2 of this course called: How to Know If You Need to Plan for Your Child with Special Needs.

If you’re already convinced you need to plan, save some time and go immediately to part 3: Special Needs Planning Step by Step.