Estate
Planning for a Child with Autism
by
Herbert D. Hinkle, Esq., Ira Fingles, Esq., and S. Paul Prior, Esq.
Herbert D. Hinkle
Law Office
2651 Main Street
Lawrenceville, New Jersey 08648
(609) 896-4200 or (215) 860-2100
What follows is a primer concerning estate planning for the future
protection of a son or daughter with a significant disability.
A. DOCUMENTS
1. Will. This
document governs what happens to the assets of the person who dies.
It should be used to designate a successor guardian, not only of minor
children, but also of an adult child with a disability. The Will should
name an executor to carry out its terms. It can also contain a trust
to hold assets for non-disabled children.
2. Special Needs
Trust. If properly designed, a special needs trust ("SNT")
can preserve eligibility for important services like SSI and Medicaid
and also shelter assets from state recoupment laws. A SNT should never
be part of a Will, and many so called SNT’s examined by the
authors were insufficient despite their characterization as a SNT.
Merely calling a trust a SNT does not make it one.
3. Durable Power
of Attorney. This document allows someone to act on behalf of a parent
who becomes incapacitated. It should include a temporary delegation
of guardianship and permit transferring assets to other children or
to a SNT so that all of a parent’s assets are not consumed on
the parents’ nursing home care.
4. Medical Directive
or Living Will. This document should not only address parental views
regarding medical treatment and its termination, but also how the
parents would like a child with a disability to be treated.
5. Other Documents:
a. Living Trust.
A living trust can be used for a variety of purposes: to minimize
estate taxes; to hold life insurance; to avoid probate; and to permit
management of parental assets in the event of deteriorating capacity.
A SNT is one form of a living trust. (There are two types of trusts:
testamentary trusts are contained in a Will; living trusts are a separate
document and can be used during a person’s lifetime).
b. Letter of Intent.
This is a document prepared by the parent to summarize important information
concerning a child with a disability. Click
here to see an example in pdf format.
B. WHY CREATE
A SPECIAL NEEDS TRUST?
Various government
programs for people with disabilities have financial eligibility requirements.
For example, Medicaid (also called "medical assistance")
and Supplemental Security Income ("SSI") are available to
people with disabilities who meet a financial means test. A gift or
bequest of $5,000 directly to the person receiving Medicaid and SSI
will terminate medical coverage and monthly SSI benefits, far outweighing
the value of the gift.
Moreover, most
states have recoupment statutes concerning residential services. (These
statutes do not apply to a residential placement made by a public
school district.) Consider a disabled person who has lived in a group
home for 3 years at $75,000 annually. If that person receives an inheritance
of $200,000 outside of a SNT, the government will claim all of it.
Thus, gifts and bequests to a child with a disability must be made
to a SNT, otherwise, the assets are at risk and eligibility for many
services is lost. An alternative would be to leave all assets to a
sibling of the child with the disability, but this does not ensure
that the assets are used as intended, and if the sibling predeceases
the child with a disability, the assets may go to people who have
no sense of responsibility.
C. FUNDING AND
ADMINISTERING A SPECIAL NEEDS TRUST
1. A SNT is usually
funded when both parents have died. Typically, the Will of each parent
will provide that when both are gone, a certain portion of their estate
will go to the SNT. Generally, it is not a good idea to fund the trust
while the parents are alive. (This generates unnecessary paperwork
and effort.) There are exceptions which pertain mostly to tax planning
strategies. Also, sometimes other family members might want to leave
assets to a SNT.
2. Life Insurance
and SNT’s. Younger parents, especially those with modest assets,
should consider using term life insurance to make sure sufficient
assets are available to fund a SNT. Such insurance, of course, is
also important to make sure that a surviving parent has sufficient
assets and that other children are cared for as well. A great way
for grandparents to help is to pay insurance premiums.
Older parents
might consider a joint survivorship policy (i.e. a life insurance
policy written on two lives) to guarantee that a minimum level of
assets are available, and perhaps to offset estate taxes.
3. How much is
needed to fund a SNT? This is hard to answer precisely, but as a rule
of thumb, more is needed before a child has been situated residentially
as an adult. Children with mild disabilities often require more than
those with severe disabilities, because they will qualify for fewer
adult services as adults.
4. Do not place
assets in the name of a child with a disability. This sounds very
harsh, but parents should never open an account in the name of the
child with a disability, and they must make sure other family members
do not do this as well. Do not open a savings account, education account,
uniform transfer to minors account and do not purchase certificates
of deposit, savings bond or any asset in the name of the child. Do
not make the child a beneficiary of a life insurance policy.
Repeatedly, clients
say that they want to maintain an account because they think their
child may not be seriously disabled as an adult. The authors’
response is to be conservative - - assume the worst for planning purposes
and do not open an account. As an alternative, the authors advise
clients to open a separate account in their names knowing that the
assets will be used for the disabled child. Birthday and holiday gifts
also go to this.
5. Choosing a
trustee for a SNT. The trustee makes investment decisions and authorizes
expenditures from the SNT. A SNT can have multiple trustees, who can
serve as a check and balance for each other. Family members are usually
the best choices for trustees. In some cases, a financial institution
or professional is used either alone or along with a family member.
The SNT should specify successor trustees and also have a mechanism
for the appointment of a successor trustee if someday none of the
named successors are available.
6. Expenditures
from a special needs trust. Funds can be used to provide additional
services, for recreational and other items which will enrich the life
of the person with a disability.
In some instances,
funds might be used to purchase or lease an automobile. Even if the
person cannot drive, a car might be made available for the benefit
of the resident of a group home or supervised apartment or for the
benefit of a family member caring for a child with a disability.
A SNT can hold
real estate in which the person with a disability will reside. This
can be especially important in the case of a high functioning individual.
The SNT should always permit the trustee to charge the person with
a disability rent to ensure eligibility for key programs. If the person
with a disability will live with other family members, the trust funds
can pay for expenses incurred and even finance an addition to a home.
In the authors’
opinion, the most important factor affecting the quality of life of
a person with a disability is the involvement of family, especially
after the parents have passed away. SNT funds should be available
to defray all expenses (travel and even child care) that family members
might incur. Funds can also be used to hire outside persons (e.g.,
community trust services) to help families monitor the care provided.
In the event problems arise, clinical or legal services can be provided
with trust funds.
7. Common mistakes
in drafting. SNT’s must permit the trustee to assess the quality
and significance of a program. Too often a SNT prohibits the purchase
of services available from the government. This means that a trustee
cannot privately purchase services of choice, such as using a preferred
program, if something similar is available from a government program,
no matter how poor the quality. Likewise, discretion should be given
to the trustee to ignore programs of marginal value. Moreover, many
SNT’s are not broad enough to pay the expenses not directly
related to the person with a disability, such as reimbursement for
travel expenses incurred by a sibling.
8. Termination
of a special needs trust. When the person with a disability dies,
the SNT can be terminated. The trust will provide where the assets
will go. Typically, the funds will go to other family members and\or
charity.
D. GUARDIANSHIP
1. Guardianship
is a legally recognized arrangement in which one person has authority
to make personal (e.g., medical treatment, placement) and financial
decisions for another.
2. Parents are
the natural guardians of their minor children. Parents are not legally
empowered to make decisions for an adult child 18 or older, even if
the child is profoundly disabled. A court appointment is necessary.
3. The legal process
is comparatively easy. It usually involves two medical certifications
filed with the Court and a brief court appearance. When the person
is a client of the Division of Developmental Disabilities, an alternate
procedure can be used which usually eliminates the actual court appearance.
4. Who serves
as guardian? Typically, both parents will be appointed as co-guardians.
If the parents are elderly, it makes sense to use a younger person
as guardian. Successor guardians can be appointed under a Will, and
temporarily in the event of the guardian’s incapacity under
a durable power of attorney. Bear in mind that you can only pass on
what you have, meaning that if a parent is the guardian of a minor
child, and the parent dies while the child is still a minor, the appointment
in a Will lasts only until age 18. A court appointment will still
be necessary at age 18. Similarly, if the parent dies after the child
is an adult, the appointment of a successor in a Will is ineffective
unless the parent had been appointed guardian.
5. Choosing a
successor guardian. The Will should include several selections. For
instance, the parents might name their oldest child as guardian, and
then their other child, if the first cannot act. Potential successor
guardians should not be fearful that their personal assets are at
risk or that the person with a disability must live with them. A guardian
is a decision-maker only.
6. Legal standard.
The legal standard for guardianship concerns the inability to manage
one’s affairs and govern one’s self. Consider such questions
as whether the person can budget money to cover living expenses for
several weeks or independently make decisions about surgery or treatment
for cancer. A person under guardianship does not lose the right to
vote if able to do so. The only right compromised by guardianship
is marriage. If this is an issue, limited guardianship is possible.
7. Limited guardianship.
In some instances, the courts will impose limitations on the guardian’s
power. For example, the person under guardianship could be given the
authority to decide where to live or to manage small amounts of money.
The guardian never has the authority to consent to sterilization;
this requires specific court approval.
E. COMMUNITY TRUSTS
These are non-profit corporations which can, by law, manage funds
in a collective or community trust. (This is useful when available
assets are very modest.) More significantly, the community trusts,
for a fee, can monitor an individual’s care and even serve as
a guardian.
Community trusts
are typically small and are staffed with one or more persons with
a social service background. They are especially useful when family
is unavailable to serve as guardian or when they live at a distance
and need someone knowledgeable to serve as their eyes and ears. A
SNT can pay for their services. This should be specifically mentioned
in the SNT.
Prominent community trusts are PLAN-NJ, Lifetime Support of Union
County and the programs operated by several of the county-based Jewish
Family Services organizations.
F. CHARITABLE
GIVING
1. Why charitable
giving? The idea of combining charitable giving with a SNT is often
overlooked. Many key providers of services to people with significant
disabilities are nonprofit organizations which cannot exist without
charitable gifts. Yet, even the most generous families often fail
to incorporate ongoing charitable giving in their estate plans. Here
are a few approaches to consider.
2. Gifts when
a SNT terminates. The primary purpose of a special needs trust is
to protect a child with a significant disability. The trust is usually
funded with a portion of the parents' estate at the end of their lifetime,
or earlier with life insurance. The idea is to insure that there are
substantial assets in the trust to fill gaps in services and to enrich
the life of the beneficiary. When the person with a disability dies,
the remaining trust assets will be distributed in whatever way the
trust specifies.
For example, suppose
Harry and Joan Green create a trust for their daughter Elaine. The
trust provides that at the end of Elaine's lifetime the remainder
of the trust will be distributed among the Green's living descendants.
Consider an alternative approach: Suppose Elaine is involved with
XYZ Organization, COSAC and Special Olympics. What better way to show
the family's gratitude than to split the trust remainder between family
and these three organizations, perhaps in the name of the Green family?
The Greens could even work with the organizations to help plan how
the gift will be used.
3. Gifts from
a SNT during the lifetime of a child with a disability. It is a good
idea for the SNT to provide that during Elaine's lifetime, a portion
of the trust income or principal will be payable to charity. In this
way, the gifts that the Greens made each year during their lifetime
will continue during Elaine's as well. She will in effect be a supporter
of the charities that benefit her. However, the trustees must be careful
to make sure each year that there are sufficient funds remain in reserve
so that the trust is not depleted too quickly.
G. TAX CONSIDERATIONS
Space does not
permit more than a few brief points:
1. Federal gift
and estate taxes. The federal government imposes a tax on transfers
during life and at death. Contrary to myth, life insurance proceeds
are part of the taxable estate. For people dying in 2002 and 2003,
a $1 million dollar exemption is provided. This rises to $2 million
in 2004, to $3.5 million in 2009, becomes unlimited in 2010 and returns
to $1 million in 2011. Gifts to charity are exempt as well as gifts
of $11,000 per person, per year.
2. Credit Shelter
Trusts. This is a trust for a surviving spouse. If done properly,
it allows the estate of a husband and wife to, in effect, have two
deductions, meaning that in 2002 or 2003 $2 million, rather than $1
million, can be passed on tax free.
3. Life Insurance
Trusts. An irrevocable trust is sometimes used to hold life insurance
to keep it out of the taxable estate. A SNT can be used for this purpose.
4. Charitable
giving. In addition to the techniques discussed above, lifetime gifts
to a charity of appreciated property give a parent, in effect, two
tax deductions. The gift is 100% deductible and the capital gain within
it goes untaxed. Charitable annuity trusts take this concept further
by providing an immediate tax deduction and income for life. Many
charities, including COSAC, have such programs.
Copyright 2002
H.D. Hinkle. All rights reserved.
Herbert D. Hinkle
serves as a member of the Board of Directors of COSAC. Ira M. Fingles
is a member of the Board of Directors of the Greater Philadelphia
Autism Society. S. Paul Prior is the sibling of an adult with autism.
Together they have over 40 years of experience in disability law.
Their work has been cited in The Wall Street Journal, The New York
Times, and Exceptional Parent Magazine. They maintain offices in Lawrenceville,
Marlton and Florham Park, New Jersey and Yardley, Pennsylvania.
Mr. Hinkle maintains
a multi-state law practice with offices in Lawrenceville, Florham
Park, and Marlton, NJ, and Yardley, Pa. Mr. Hinkle and his colleagues
Ira Fingles, and Paul Prior lecture and write frequently on topics
of law, aging, and disability, and are available
to speak to groups in New Jersey and Pennsylvania
at no charge. Call (609) 896-4200.
