Monday, May 13, 2013

Inheritance can create problems for grandchild with special needs

One blessing of aging is that it gives us the opportunity to get to know our grandchildren, and perhaps even our great-grandchildren. As we live through our 70s and 80s we can watch them grow into adulthood. We can develop special relationships with them and be a big part of their lives (and vice versa).   
It’s no wonder then that so many grandparents want to leave an inheritance for their grandchildren. Often the major portion of the grandparent's estate is left to his or her children, but a small inheritance is designated for each grandchild.
Remembering our grandchildren in our estate plan can be a wonderful gesture of love. But be careful if you have a grandchild with special needs. Even a small inheritance can create big problems for them.
Take the case of a client I’ll call Mary. When I met with Mary she brought her old will with her. In that will, she left $25,000 outright to her grand-daughter Emily. I asked Mary about Emily. She explained that she was always especially close with her grand-daughter, who she said had “a good heart.” Emily was age 32 and had some problems in her life. Emily was bi-polar. While she was usually good about taking her medications, every once in a while she had a problem and was hospitalized.
Emily was unable to work. She received a monthly benefit from SSI and her health care was covered by Medicaid. Although she was unable to work, Emily was able to live on her own in subsidized housing. 
Mary figured that Emily could use a little money. And Mary wanted Emily to know that she loved her deeply – that was the main purpose for the $25,000 inheritance.     
I had to explain to Mary that her wonderful loving gesture was likely to cause Emily some problems. In order to keep her SSI and Medicaid benefits Emily is allowed to have no more than $2,000 in the bank. The $25,000 inheritance could mean that Emily would lose these important benefits.
But it wasn’t necessary for Emily to be disinherited. Mary could still remember Emily and leave her an inheritance – she just needed to leave the gift in a protected manner that wouldn’t disturb Emily’s benefits. A special needs trust could be used to do this.
If the $25,000 inheritance was left to a special needs trust, the money would be held by a third party who would use it to provide benefits for Emily in a manner that would not cause her to lose her public benefits. There were several ways that Mary could implement this kind of planning.
-       Mary could create a special needs trust in her will. Someone who Mary trusted to care for Emily’s interests (probably a parent or sibling) would be named as trustee to manage the inheritance and use it for Emily’s needs.
-       The inheritance could be contributed to a pooled trust account set up for Emily. Under this option, the money would be professionally managed by a non-profit entity and used to fund Emily’s needs without disturbing her benefits.
-       The inheritance could be contributed to a special needs trust for Emily that was set up by Emily’s parents, or some other third party.      
We called Mary’s daughter (Emily’s mother) to ask if she had done any planning for Emily. We found out that Emily’s parents had already set up a special needs trust for her. We ended up designating that trust as the recipient of the inheritance from Mary.
When Mary signed her will, she gave a big sigh. I asked what that was about. She told me she had been worrying for years about the money she wanted to leave Emily. She hadn’t been thinking about SSI and Medicaid. Instead, she had been concerned that if she had $25,000 in the bank, someone might take advantage of Emily, who was the “sweetest girl in the world,” Now, she didn’t have to worry about this anymore. Putting the money in trust would protect it for more than just public benefit reasons.
When Mary left my office she gave me a big hug. “Thank you Mr. Marshall,” she said. “Thank you so much.”
After she left, I felt really good. Some days it’s just great being an elder law attorney.    
For More Information
Pooled Trusts operating in Pennsylvania include:

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