How to Plan For a Disabled Heir

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Last Updated: January 31, 2023 References

Providing for a disabled heir poses challenges. However, with a properly drafted estate plan, you can provide support for your loved one without compromising their ability to receive government benefits. Meet with a lawyer to discuss a “special needs trust.” With this kind of trust, you leave money and assets for the benefit of your heir. The money will be managed by a “trustee,” who can spend it to on services for your loved one, such as personal care attendants, medical expenses, or home furnishings.^{[1]
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Part 1

Part 1 of 3:

Identifying Assets to Leave the Heir

1
Find out if your heir gets government benefits. Many disabled people receive benefits from the government. Common benefits include Supplemental Security Income (SSI), Medicaid, and other benefits. If they do, then you'll need to create an estate plan that doesn't cause your heir to lose those benefit.
- Fortunately, you can create a “third-party settled special needs trust.” You fund this trust with cash or assets. Because the assets aren't owned in your heir's name, the government won't consider them when determining your heir's eligibility for government benefits.^{[2]
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- If you leave money directly in a will, then you may disqualify the heir. For this reason, you should proceed cautiously and create an appropriate trust.
2
Identify what assets the heir has. Your heir can also fund their own trust, called a “self-settled special needs trust.” You should investigate what kinds of assets they already have available.
- For example, a disabled person might have won a sum of money in a lawsuit. Alternately, another family member might have left them assets.
- If they set up a proper trust with their assets, they can still qualify for government benefits. However, government benefits may have to be repaid with assets left over in the trust after their death.^{[3]
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3
Determine if you should leave retirement benefits. Most people have most of their wealth in retirement accounts. You should have named beneficiaries to receive your benefits after your death. Check whether you named the disabled heir as a beneficiary.
- If you named your disabled heir, then the government will count those assets when determining if your heir is eligible for government benefits.
- You can avoid this problem by naming the special needs trust as the beneficiary. However, leaving retirement benefits to a special needs trust has negative tax consequences. You should talk this over with a lawyer.
- Instead, you might want to leave retirement benefits to your other heirs and fund the special needs trust with other assets.^{[4]
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4
Consider purchasing life insurance. You can also leave life insurance proceeds to a special needs trust. Ideally, you will have permanent (not term) life insurance. Permanent life insurance can provide for your disabled heir regardless of when you die.
- Some insurers, such as Merrill Lynch and MetLife, have create divisions to help clients plan for a disabled heir.^{[5]
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  Research source} Choose an insurer with experience helping families with special needs children and get expert help.
- Think carefully about who to insure. If one parent stays home to care for a disabled child and the other works, you might want to insure the caregiver so that you can afford to pay someone else to care for your child.
- If you already have life insurance, then review the beneficiary designations on the policy. You don't want to leave life insurance proceeds directly to the disabled heir if they receive government benefits.
5
Calculate how much your child will need. Begin by estimating their likely life expectancy. Then calculate how much it costs each year for medical care, housing, personal attendants, etc. You should have some of this information already at hand.
- Remember to deduct the amount of government benefits they will continue to receive in the future.^{[6]
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Part 2

Part 2 of 3:

Creating a Special Needs Trust

1
Meet with a lawyer. A qualified estate planning lawyer can review your situation and provide tailored advice. You should schedule a consultation and meet to discuss the best course to take.
- You can get a referral to a lawyer by contacting your local or state bar association. Ask for a trust and estates attorney, preferably one who has handled planning for disabled heirs. Planning for disabled heirs has its own unique wrinkles, and you'll want a lawyer who has extensive experience in this area.^{[7]
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- Call up the lawyer and schedule a meeting. Ask how much the lawyer charges.
- Talk with the lawyer about whether your disabled heir will need to be at the meeting.
Your lawyer will want to know how you will fund the special needs trust. You probably will need to complete detailed paperwork before showing up to your consultation. You may also need to bring copies of your retirement account and life insurance policies. Ask ahead of time what you will need.
3
Discuss pooled trusts. Pooled trusts are special needs trusts. However, they are usually run by nonprofits.^{[8]
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- Pooled trusts aren't available everywhere. Talk to your lawyer about whether this is an option and where you can find more information.
4
Appoint a trustee. You will transfer assets to the trust, which means they are no longer yours. Your disabled heir will be the “beneficiary” of the trust. You'll also need to name someone as the “trustee,” who oversees the trust. The trustee invests the assets and disburses money for the beneficiary's benefit.^{[9]
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- Talk with your lawyer about who would be a good trustee. Generally, you will want to name someone who is familiar with your disabled heir's needs. For example, a sibling might be a good choice.
- A trustee should also be financially responsible, although they do not need to be a financial expert.
- You can name successor trustees in case your first choice declines, dies, or chooses to stop acting as trustee.
5
Revise your will. If you left assets directly to a disabled heir in your will, you may need to revise it. You don't want these assets to pass to them in probate after you die, since the assets may disqualify the person for government benefits.
- Show your lawyer a copy of your current will. You may need to draft an amendment or revoke the old will and draft an entirely new one.
6
Handle other issues at the meeting. Since you're meeting with the lawyer about the special needs trust, you should tackle related issues at the same time. For example, talk about the following with your lawyer:
- Your own death or incapacity. For example, you might want to create a durable medical power of attorney in case you become incapacitated. You can also create a durable financial power of attorney so that someone can manage your finances when you no longer can.^{[10]
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- How you will provide for your other heirs. For example, you might want to create a will at the same time you create the special needs trust. Alternately, you could create a separate trust for your other heirs.
- Whether you should write a nonbinding statement of wishes. Immediately after you die, it will take a little bit of time for a special needs trust to go into effect. During this period, you'll want to provide for your disabled heir. Your letter can explain who should take care of the heir until a guardian can be named, as well as what medications they should take and where they should stay.
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Part 3

Part 3 of 3:

Naming a Guardian or Caregiver

If your child is a minor, you can name a guardian. This person will take care of your child once you die. Check your will to see if you have named someone. If not, your lawyer can help you.
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Talk about what happens when your child reaches adulthood. Once a child reaches adulthood, they generally are allowed to take care of themselves unless a court appoints a guardian to make decisions for them. Discuss with your lawyer about being named your disabled child's guardian.
- Also talk about what will happen when you die. Identify how you will provide for a successor guardian of an adult disabled child. You may have to update your will or take some other step as allowed by state law.^{[11]
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- If you name a successor guardian, be sure to talk to them ahead of time. It is a heavy responsibility for someone, and you only want to name someone who is serious about serving. You will also need to begin talking about the care your disabled child receives.
3
Gather information for a future guardian. You should set up a filing cabinet or a folder and collect important information. Remember that a future guardian is not as intimately familiar with your disabled child's needs as you are. Put the following in the folder:^{[12]
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- Personal information. Include birth certificates, insurance policies, and social security cards.
- Emergency contacts. Include the name and information for the person who will care for your child immediately after your death or incapacity. If your child is in school, add the name of any guidance counselors.
- Medical history information. Include the name of your child's primary physician and specialists. Also include information on medications, allergies, family medical history, insurance company policy numbers, and Medicaid information.
- Legal information. Include the name and contact information for your lawyer and the trustee.
- Financial information. Keep a copy of your estate plan and information on your child's representative payee accounts. If you use online banking, then include account information and passwords.
- Your statement or letter of intent.
- Your personal information. Since you are creating a folder for a disabled child, you might as well create one for yourself at the same time in case you become incapacitated. Include your personal information (birth certificate, marriage certificate etc.) and financial information.
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Avoid disinheriting your disabled heir under the belief that a sibling or other family member will take care of them. Some people disinherit a disabled child but leave extra money to their other children so that they can provide for the disabled child. However, the caregiver could be sued or go bankrupt, and any money you left them to take care of your disabled heir could be lost.^{[13]
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