Anyone with a child or grandchild with a disability needs to pull out their will and make sure the way it’s written doesn’t unintentionally keep someone they love from the benefits they need.
This article from Kiplinger, 2/9/22 and written by James J. Ferraro, JD, is an eye-opener for those of you with an heir with a disability. If this is your situation … I encourage you to read on. The author, James J. Ferraro, JD, has this to say:
“Estate planning is not a requirement. No one can force you to make your will, create a power of attorney or to own your property in a way to avoid probate. As a result, people too often let common estate planning excuses stand in their way.
For those who fail to plan, states have default laws for managing the transfer of their property and assets at death or for controlling their property if they lose this ability because they’re critically injured or at an advanced age.
However, these laws should be viewed as a backup plan, not an ideal arrangement — especially if you have a family member with a disability. By relying solely on the default laws in the probate or guardianship code of your state without considering your heirs’ current or potential eligibility for certain benefits, you might unintentionally disqualify your disabled child or grandchild from receiving public benefits, or these benefits may be substantially reduced. Thoughtful planning on your part can create additional benefits for your heirs by preserving resources made available through private or public sources.
A person with a physical or cognitive disability may qualify for taxpayer-sponsored public benefits or privately funded benefits to support his or her living expenses, since he or she may be unable to work or to gain full employment due to a disability. These public benefits, called Supplemental Security Income (SSI) are “means tested,” meaning that to apply (or re-apply) for them, a person must utilize, or “spend down,” most of their savings or funds that are available without restriction.
Grandpa’s problematic old estate plan
I was recently introduced to a widower who has five grandchildren. His grandson suffered a severe head injury and compound fractures to his leg in an automobile accident when he was 16. He will have difficulty with fine motor skills for the remainder of this life and can’t stand for extended periods. He is now 22 and qualifies for SSI to supplement his earned income. His grandparents had a typical estate plan created before the accident. It provided that at the death of the first spouse, the balance of that person’s estate would pass to the surviving spouse. Upon the surviving spouse’s death, the balance of the remaining joint estate would be divided, leaving shares directly to their surviving children and grandchildren.
This plan would have caused an unintended consequence for this grandfather’s disabled grandson. Since his grandson would receive this inheritance directly, the Department of Human Services in his state would have considered his inheritance an available resource, disqualifying him from continuing to receive full governmental benefits, including Medicaid health insurance, until these funds were fully used. His problems would have been compounded if his father wasn’t living at his grandfather’s death, because he would have also been entitled to the share set aside for his father.
Thankfully, the grandfather updated his estate plan (described in detail below). Had he not, it still would have been possible for his grandson to continue receiving public benefits, but this would have required the state to be reimbursed for the benefits paid during his lifetime before any remaining funds could be distributed to other family members. The grandfather was resolute in his decision to change his estate plan when he became aware of the likelihood that the state would be paid a portion, if not all, of his legacy.
How supplemental needs trusts work
After collaborating with an estate planning attorney experienced in the complicated arena of public benefits planning, we explained to the grandfather that funds can be held in a trust that won’t reduce his grandson’s present benefits or disqualify him or other heirs from future benefits. These trusts are known as supplemental needs trusts or special needs trusts (SNT).
An SNT can be either a first-party trust created by a parent, grandparent, guardian or a court using the beneficiary’s own funds or a third-party trust funded with assets belonging to the trust’s creator. Because the beneficiary’s assets are used, a first-party SNT requires that the state benefits provider be reimbursed for lifetime benefits paid by it on behalf of the beneficiary. A first-party SNT could have been created by the court had the grandfather not changed his original plan, but state reimbursement would have been required.”
My clients want their hard-earned assets to be protected and certainly not harm their heirs in any way. This is an excellent example of what can happen if plans are not made carefully, and updated regularly. What happens to your heirs, such as the young man in the article becoming disabled at 16, can make a huge difference. I thought this article not only did a great job of illustrating what can happen but also, reminds us of the need to routinely update our estate plans. If your Cincinnati estate plan needs an update, regardless of the reason, let me help. We can’t predict the future but we do a lot to plan for it together. Please visit my website and check out my services related to estate planning, wills and probate at https://davidlefton.com/services/ to learn more?
For more information about estate planning, probate, or trust administration in Cincinnati and throughout the rest of Southwest Ohio, and to review free resources regarding estate planning, probate, or trust administration, visit my website https://davidlefton.com/ If you have questions regarding this article or a particular legal matter, feel free to contact me at 513-399-PLAN (7526). David H. Lefton is an Estate Planning and Probate Attorney. He is a partner in the law firm of Barron, Peck, Bennie & Schlemmer.
Source: Kiplinger, 2/9/22 by: James J. Ferraro, JD