Estate planning for a special needs beneficiary can be complex and yet simple at the same time. It’s complex because there is a cacophony of information, misinformation, and half-truths out there, and it can be difficult for parents and loved ones to sort through. On top of that, rules surrounding disability, Medicaid, and other benefit programs change all the time. What can make special needs estate planning simple is the main concepts have changed little over the decades. However, we have seen many planning failures by attorneys because they insert current regulation details into the plan instead of broad, tried and true techniques.

Here are the four keys:

1)Focus on finding the right, long term trustees, and always have a trust company as a backup;

2)Stop trying to find Superman or Wonder Woman to do everything… often selecting trustees to handle the financial aspects and separately choosing guardians opens up far more options;

3)Don’t focus on current benefit program details. They change over time, and giving the trustee a lot of room to pivot to meet new laws and regulations is far safer;

4)Don’t ever mandate a special needs beneficiary receive anything outright, and only allow them to be the beneficiary of a trust where the trustee has broad discretion.

Unfortunately many years ago, a trustee and their nephew/beneficiary came to me for a second opinion. The parents had already died, and the uncle was confused about the advice he was receiving from the attorney who drafted the trust. It turns out the attorney advised and wrote into the trust to give the beneficiary $2,000, an expensive vehicle, and the family home outright. At the time the planning was done, the parents’ special needs son was still very young, but at the time they passed on the son was working and already had a car. Even worse, the rules had changed, real estate prices had skyrocketed, and now the house equity value was too high. So the trustee was advised to:

  • Sell the car and spend the money down;
  • Spend the $2,000 down; and
  • Take out an equity line on the house, withdraw $70,000, and spend all of that down.
The advice was correct to maintain the benefits the nephew already had, but the planning on the front end was colossally misguided. If the attorney had stuck to keeping everything in trust instead of trying to show off their knowledge of the rules at that time, then the trust estate wouldn’t have had to waste tens of thousands of dollars. Further, the house might very well be subject to a Medicaid lien when the nephew dies, and the house could be lost in the long run instead of staying in the family. I already have a video out on the Four Keys to Special Needs Estate Planning that covers those concepts in a little more detail on the YouTube channel at www.youtube.com/nclawyer, and if you would like to help us out, please subscribe. It makes a big difference as we try to build the community.