If you have a special-needs child, you are entitled to certain benefits and programs that help to relieve the immense costs of your child's care. Long-term financial planning is essential to make sure that your child continues to receive those benefits when you are no longer able to provide care.
Leaving an Inheritance is a Mistake
The biggest mistakes you can make are to delay estate planning and to use standard strategies that could actually put your child at risk. For example, in order to qualify for Medicaid and other benefit programs, special-needs children may not have more than $2,000 in their own name. Parents and well-meaning relatives who give money to a disabled child -- either now or in their Wills -- could make the child ineligible for some benefits, creating the need to spend down the money and re-apply for benefits.
Some parents try to solve this problem by disinheriting their disabled child and giving the money to a sibling or family member who promises to care for the child, a solution that puts enormous stress on the sibling or family member and doesn't guarantee that the child's needs will be met.
Solutions
Any of several basic solutions, when set up, will allow your child to maintain eligibility for Medicaid and other state and federal assistance.
One is a Special-Needs Trust. This Trust is created in your Will, and acts as a receptacle for money earmarked for the child. It can improve the quality of life for a disabled adult without endangering eligibility for government programs. Typically, special-needs Trusts are designed so that none of the money can be used for food, clothing and shelter, all services provided by government programs but the money may be used for amenities government programs don’t provide, such as travel, entertainment, and recreation.
To create a special-needs Trust, you need professional help from both a financial planner who specializes in special-needs issues and an estate attorney knowledgeable about your state’s laws about providing for disabled children. Laws in every state are different.
To create a special needs Trust you must:
Another solution, one that can be used simultaneously with a special-needs Trust, is an OBRA Supplemental Trust. OBRA stands for the Omnibus Budget Reconciliation Act of 1993, the law that changed the Medicaid rules pertaining to the transfer of assets.
COBRA has made it possible for a person who is disabled and under the age of 65 to remain eligible for Medicaid even if that person receives money or assets in excess of $2,000 from a direct inheritance, lawsuit, divorce settlement or other financial gain, if that gain is placed in a qualifying Trust. This type of Trust is also called a "payback" Trust because if any funds remain in the Trust when the beneficiary dies, the state is entitled to be paid back the full amount Medicaid paid on behalf of the beneficiary. Your attorney needs a thorough understanding of OBRA to help you set up this kind of Trust.
Where to get help
If you have a child with special needs, you should work with a local lawyer and financial adviser because laws and resources vary from state to state. Several new organizations make it easier to find special-needs planning experts, many of whom have disabled children themselves and can help you navigate the benefits system and find local resources.