Mistakes Retirees Make - Failing to Plan for Beficiaries with Special Needs

[Pennsylvania retirees often make legal and estate planning mistakes because of a lack of accurate information and guidance. These mistakes can impact the retirees’ financial security and prevent them from achieving important goals.] 

The existence of a child, grandchild, or other potential beneficiary with a disability (often referred to as “special needs”) complicates the estate planning of a parent or grandparent.  Proper planning of your will, trusts, and beneficiary designations becomes even more crucial to protecting your heirs. 

 With wise advance planning, you can provide for all of your family members without jeopardizing a special needs individual’s current (or potential) eligibility for important government benefits such as Supplemental Security Income (“SSI”) and Medicaid.  These “needs based” government programs can provide substantial support for your special needs beneficiary but only if you set things up so that the beneficiary will be able to meet the programs’ financial standards.

 The rules are complicated and it’s easy to make a mistake.  Here are some of the common mistakes I see retirees making when planning for a special needs beneficiary: 

(1) Making outright distributions from a will, trust, insurance policy, annuity, or retirement plan to the special needs individual.  The receipt of this kind of outright inheritance will likely make the beneficiary ineligible for continued SSI and Medicaid benefits;

  (2) Disinheriting the special needs person – which may leave an already vulnerable beneficiary even more dependent upon the uncertain future generosity of the government. 

 (3) Leaving property to another family member with an “understanding” that they will use the funds to take care of the special needs individual – this plan is fraught with danger and complexity.  What if the other family member dies, runs into medical or financial or marital difficulty, or becomes estranged from the special needs person?  

(4) Establishing a “support trust” for a special needs beneficiary - which may force the trust’s funds to be spent down before public benefits become available. 

There are much better ways to plan. One effectibe planning tool is the “Special Needs Trust” which can be created to take effect either during your lifetime or upon your death.  A Special Needs Trust can provide for the beneficiary’s continuing eligibility for government benefits, protect the inheritance from claims for government reimbursement, and protect the inheritance from loss to third parties, including siblings, grandparents, aunts, uncles and friends who may have the best of intentions.   

 The Special Needs Trust must be carefully drafted by a lawyer who is familiar with this area of law.  A wrong word can make all the difference between creating a fund that will enhance the beneficiary’s life by supplementing public benefits, and a fund that will quickly be exhausted replacing those government benefits.