Planning for the future of any child can be a difficult undertaking, but for those with special needs children, the task is often unimaginably emotional and daunting. Despite the difficultly, the importance of ensuring a child with special needs will be properly cared for after their primary caregiver passes on can't be stressed enough.
It takes careful planning to ensure that children with special needs will have all their basic needs met, have a high standard of care, and continue to enjoy a comfortable life. Thinking about the specifics of care after you pass on might not be the most pleasant thought, but procrastinating such planning can be detrimental to the welfare of your child.
One of the main problems, whether your estate will go through probate or be determined through a will, is that a lack of proper planning can result in a large chunk of the inheritance going toward estate taxes. Your disabled child might not be mentally or physically capable of living alone and need to be cared for by a state institution. In this case, there is an array of problems with your child being the direct beneficiary. For example, many states will enforce a liability cost against your child for the services of the state institution. You do have a few options to avoid such problems.
You might consider leaving the disabled child's portion of the inheritance to their sibling. The sibling can then use the money to oversee care for their disabled sibling. However, this plan isn't without risk. The sibling in charge of the money might feel overwhelmed or consumed by their new responsibilities, especially if their new responsibilities result in sacrifices to their work, family, or leisure time. The sibling might also abandon some of their responsibilities if the funds set aside to care for their disabled sibling run dry; they face their own financial difficulties; or face life altering events like a divorce, bankruptcy, long-distance move, or illness.
A living trust or discretionary trust is another planning option. When the trust is established correctly, it's an option that can allow the disabled child to retain any government benefits, such as Medicaid, Medicare, or Supplemental Security Income, that they might be eligible to receive. The person named as trustee of the trust will have the authority to use the principal and income of the trust as needed to supplement the assistance provided through government assistance programs. In other words, the disabled child will have their basic care needs met through the assistance programs, but still be able to have the extra clothes, grooming, special medical care, and such that would otherwise not be afforded through a government assistance program. Another positive side to a trust is that the assets within the trust have the potential to accumulate.
A few families might be in the fortunate financial position to rearrange assets to fund the trust. For those without such assets, the trust can be funded with a Permanent Life insurance policy. Many choose a second-to-die type of Permanent Life insurance since it has a lower premium than traditional policies. A second-to-die policy will be payable after both spouses pass away and can be a perfect timing solution to caring for a disabled child after both parents pass away.
Whatever the direction of your plan, do make sure that it's in place as soon as possible to ensure that your child receives the caliber of care that you yourself would provide. Unfortunate events happen everyday. Although the future can't be predicted, you can have peace of mind in knowing that your special needs child will be financially secure.