Approximately 12% of the US population is physically or mentally disabled. Many of these individuals reside with or receive financial support from their parents or other family members. Estate planning for these dependents is crucial for ensuring their long-term care and welfare.
Considerations for Disabled Children
There are many things that parents and caregivers must take into account when estate planning. These include the following:
Guardianship – Depending on the disabled child’s physical health and mental condition, it may be necessary to appoint a guardian to oversee the finances and healthcare decisions of a disabled child. Appointing a trusted guardian is one of the most crucial steps in caring for a disabled child as laws, regulations, and filing requirements are certain to change over the child’s lifetime.
Trusts – A special needs trust can be set up and used to cover medical expenses that are not covered by Medicaid. However, in order for the disabled child to still qualify for Medicaid and SSI, it is necessary for distributions from the trust to remain below the maximum income limits set by these programs.
Another type of trust is the Plan for Achieving Self Sufficiency or PASS. These trusts allow income and assets to be exempted from SSI and Medicaid calculations. An estate planning attorney can help set up a qualifying trust that will give the disabled child financial flexibility without the risk of losing the benefits they depend on.
Housing – Parents or caregivers of a disabled child can set up a Qualified Personal Residence Trust or QPRT. This allows the homeowner to remain in the home before transferring ownership of the property to their disabled child upon their death. This trust allows the transfer to occur at a discounted rate to the existing market value. One benefit of the QPRT is that it can be transferred to a charity or surviving family member to manage.
Life Insurance – Death benefits paid out from life insurance policies will be distributed to surviving heirs, however, these payments are counted as income and could disqualify a disabled child from SSI and Medicaid benefits. However, payments made to special needs trusts are exempted.
An estate planning attorney in Illinois can help set up qualifying estates that address the long-term healthcare and financial needs of their disabled child. These estate plans can be updated and amended as the law and the child’s needs evolve and change over time.