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Estate Planning Considerations for Siblings of People with Disabilities

by S. Paul Prior, Esq.

Most parents want to leave assets to their children when they die. However, if a person with a disability receives assets, he will lose Medicaid and SSI, and the assets may also be subject to recoupment by Medicaid, or by the State.

Some parents are inclined to disinherit the child with a disability, leaving everything to the non-disabled children with verbal instructions to use part of the inheritance for the benefit of the sibling with a disability. This gift of "moral obligation," can be equally disastrous. Even if the non-disabled sibling uses the assets exactly as the parents intended, assets can be claimed by creditors, can have negative tax consequences, and can be subject to equitable distribution in the event of divorce.

We recommend the establishment of a special needs trust ('SNT') which will protect family assets, yet make them available to protect and enrich the life of the person with a disability without jeopardizing benefits available from the government. A SNT is a unique legal document that contains a set of instructions describing how assets placed into trust will be administered on behalf of a person with a disability.

A trust can be established in a Will or as a separate document that is sometimes called a ‘living trust.’ Usually, it is a mistake to establish the trust in a Will when the chief beneficiary is a person with a disability. When the trust is funded, usually on the death of both parents, the trustee's responsibilities begin.

In an overwhelming number of cases, the child without a disability will serve as trustee of the SNT. It is important, therefore, to understand the role of the trustee. The person, persons, or organization that manage the trust are called the trustees. There can be one or more trustees.

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Transition from Special Ed Services to Adult Life

As your child approaches transition from school to adult life, parents should become familiar with the state agencies that provide adult services.

In New Jersey, they are the Division of Developmental Disabilities and the Division of Vocational and Rehabilitative Services. In Pennsylvania they are the County Mental Health\Mental Retardation Agency and the Office of Vocational Rehabilitation.

Do not wait until the last year your child is in school. Instead, invite their representatives to IEP meetings to assist with transition planning. Ask them to sign the IEP. Keep focused on what your child needs and do not water down your child's transition plan because of gloomy predictions about the availability of services.

If adult services agency staff cannot attend, send your case manager draft transition plans, asking for input and approval. The goal is to get a commitment for services in the future.

Health Care and Elder Law Considerations

by
Valerie A. Powers Smith, Esq. and Herbert D. Hinkle, Esq.

As parents of children with disabilities age, a number of factors must be taken into account. First and foremost, is the question of whether their assets will be exhausted by nursing home care, leaving nothing to protect the child with a disability. Here are some thoughts:

1. Long Term Care Insurance (LTCI). Standard health insurance and Medicare will not pay for custodial care on an extended basis. Separate insurance should be considered. Generally, such insurance cannot be purchased by those in poor health or those over age 80. LTCI can preserve assets and allow freedom of choice in terms of a facility.

2. Transfer Rules. Medicaid will pay for long term care, but to qualify an applicant cannot have more than $2,000 in countable resources. Assets can be transferred in order to qualify; however, care must be taken in regard to look-back rules and potential negative tax consequences. There is, however, an important exception to the transfer rules and penalties: assets can be transferred to a disabled son or daughter (regardless of age) without penalty. Tax issues still apply and the transfer must be made by way of a special needs trust with additional features necessary to comply with this unique federal law. Without a special needs trust, the transfer will qualify the parents for Medicaid but disqualify the child.

3. Durable Power of Attorney. How can a parent transfer assets if he/she is now incapacitated? A power of attorney that is properly drafted can enable a transfer to take place even if the parent is incapacitated.

 

 

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