Providing for A Child
With A Disability
an interview with Attorneys
Mark Russell and Arnie Grant
Providing for a child with a disability was a topic we had to research because it is a factor all-too-frequently in our family business consulting work.
That led to us discovering
Planning For The Future - Providing A Meaningful Life For A Child With A Disability
a well-written and easy-to-read book that "... answers every question that attorneys Russell and Grant have been asked over their collective thirty years plus of experience in advising families who have a disabled child."
We reviewed the book immediately and strongly recommend it to our clients and site visitors.
We also learned about a particular trust that is a key estate planning tool for families who have a child with a disability - the
Special Needs Trust
Always interested and curious to know more about the book and authors, we tracked them down in the Chicago area for an interview that we think you will enjoy and find enlightening. Mark and Arnie didn't just happen to find this area of law - they were born and married into it to solve family circumstances...
FBE : How did you get into this field as attorneys, helping parents who have a son or a daughter with a disability?
MARK: I was really born into this field. My oldest brother was born with a mild intellectual disability and a bipolar disorder.
Professionally, I actually got into this field when I was in law school around 1980. My father had just retired and he wanted to “give back” to the community. So, as a volunteer, he co-founded a charitable organization that was trying to answer the question about how can parents plan for the future security of a person with a disability.
I became an early Board member and that was the beginning of my career.
ARNIE: I had a brother-in-law with a disability. He had a trust and was receiving government benefits. The state tried to seize the property in the trust claiming that he didn't need government benefits since he had the trust. Now government benefits provide very little, just the bare necessities of life, so losing the trust would have left him in a sorry state. I started getting into the law, and learned that had the trust been properly drawn, we would have avoided this problem.
FBE : What do you mean - had the trust been properly drawn?
ARNIE: His parents should have left the inheritance in a special needs trust for his benefit.
MARK: We talk about this a great deal in the book. Think of a special needs trust as a gift to the child - a kind of indirect gift. The money goes to a 3rd party, the trustee, who from a property law standpoint owns and controls the money, but according to the terms of the trust document, the trustee must use the money for the benefit of the beneficiary.
Now a lot of Government benefit programs deny benefits to a person with a disability if the person has too many assets. The key with a special needs trust is it doesn't count as a resource of the beneficiary’s so the beneficiary can qualify for benefits, and given the cost of providing for the needs of a person with a disability, this is generally critical.
ARNIE: But it’s very important that the trust is properly drawn. The problem historically has been, many estate planning attorneys, especially in earlier years, knew very little about the eligibility requirements of government benefits. So, attorneys would draft trusts for people with disabilities the same way they'd draft trusts for people who weren't getting government benefits.
Often, the trust document would read something to the effect that the principal and income of the trust shall be distributed for the beneficiary’s “health,” “support,” “maintenance,” and “education.” Attorneys call these words “ascertainable standards.”
The problem was that many states went to court to seize the money in these trusts. And about half the time, depending the exact terms of the trust and the specific state laws, the states won. You have to look real closely at the state and federal laws to make sure the trust is written so that it doesn't count as a resource of the person with the disability.
MARK: On the other hand, we see some trusts where the attorneys are so focused on government benefits, that the trusts are really too restrictive – and don't need to be. The trustee doesn't have the power to spend the money for the types of things the beneficiary may need. In the book, we spend much of one chapter discussing the issue of providing as much flexibility in the trust document as possible. After all, the child with a disability may live 10, 20 or even 40 years after the parents die – so flexibility in the trust document is crucial.
ARNIE: State law also plays a part. There are a handful of states where the trust has to be written very restrictively. You always have to look at the laws of the state where the child receives benefits.
FBE : Should parents ever leave an inheritance outright to a son or daughter who has a significant disability?
There are few absolutes in estate planning, but this is one. If the child has a significant mental disability, the answer is no.
If the child has a significant mental disability then the child will obviously have difficulty managing the inheritance. And this inheritance is the child’s last safety net -- so from a planning perspective parents generally want to be conservative and legally set up their estate plan to protect the inheritance.
If the child inherits the money directly in his or her name the child will typically lose needs-based government benefits – the big ones being Supplemental Security Income (SSI) and Medicaid. With these needs-based government benefits the person with a disability can't own more than an extremely small amount of countable resources – often no more than $2,000. So, if the child inherits money directly he or she will lose these very valuable government benefits. And if the child’s been receiving benefits before or after getting the inheritance, the state may actually try to seize the inheritance. A properly drawn special needs trust solves all these problems.
On the other hand, if the child has a physical disability with no mental impairment and the child never expects to need government benefits because he or she can work, in that case, a special needs trust wouldn't be necessary.
ARNIE: And by the way, the son or daughter with a disability can inherit assets directly even if Mom and Dad have perfectly drafted Wills and trusts. It’s always important in the planning process to look at secondary beneficiary designations. For instance, let’s say Dad owns life insurance, an IRA, a retirement plan, and an annuity. All these assets transfer ownership at Dad’s death by beneficiary designation. Often, Dad will designate his wife as the primary beneficiary, but if she predeceased him, or they died in a common accident, then the secondary beneficiary designation controls the transfer of the asset. Lots of times, when we review our clients beneficiary designations, we see as the secondary beneficiary designation – children in equal shares.
Well, presto, now we have a problem. On Dad’s death, the child with a disability now owns assets and the child loses the benefits. And, remember, these assets with beneficiary designations pass outside of the Will and trust. So, again, Dad might have had the perfect documents. In the planning process, it’s important to name the child’s special needs trust as the beneficiary of the inheritance.
MARK: And, of course, the most obvious problem is if the parents die without a will which is called dying “intestate” – then the state’s intestacy statute will write a will for the parent and if there’s no spouse living then typically the entire estate will go to all the children in equal shares. So, once again, the child with a disability inherits money outright and we've got problems.
FBE : Why can't parents just leave the inheritance they want to give to their child with a disability to somebody else who will use it for the child– a “non-disabled” sibling of the child or the child’s aunt or uncle? Wouldn't that be easier?
MARK: That approach has a different set of problems.
If Mom and Dad leave the share they wanted to give to their child with a disability to say Aunt Martha, although Aunt Martha has a moral obligation to use the money for the benefit of the child, she can legally spend the inheritance any way she wants. So, if she decides she wants to use the money to buy a condo in Florida, she can. Or maybe, her husband talks her into it.
Or, let’s imagine Aunt Martha really loves the child with a disability and wants to spend the money on the child. Well, what if she dies – in most instances her immediate family will receive the money –not the child with the disability. Or, what if she goes into a nursing home and her estate is spent down. Or she’s sued, or she gets a divorce and her spouse claims the money, or she has money problems. The child’s funds can be awfully tempting. Maybe she’s under pressure and uses it, intending on giving it back when her financial condition improves, but it doesn't.
ARNIE: Anything can happen to that money. So giving the child’s inheritance outright to a third party is simply not a safe alternative.
FBE : Do parents ever feel they are pulling a “fast one” on the states with this type of legal maneuvering -- getting government benefits and keeping the money?
ARNIE: Wealthy people plan to reduce income taxes all the time. This is the same thing — taking advantage of what the law allows. States recognize the importance of government benefits for people with disabilities. And they also recognize the importance of having something in reserve.
MARK: A number of states have passed statutes blessing special needs trusts.
Why? Well, from a public policy standpoint, many of the state legislators understand that if they were to make these trusts illegal, what would Mom and Dad do? They can't leave the inheritance outright to the child with a disability because of all the problems that it would cause, so they would probably leave the child’s inheritance to “Aunt Martha” or the non-disabled sibling.
As we talked about before, if for whatever reason this money doesn't work its way back to caring for the person with a disability, the state is worse off. The state would have a greater financial burden to care for the person with a disability.
So, we think it’s great public policy that so many of the states see the special needs trust as a private/public partnership.
If state Medicaid won't pay for a root canal, the special needs trust can. If the state won't pay for a trip for the child with a disability to visit his relatives, the special needs trust can.
FBE : What else can you tell us about your book?
MARK: Well, we're very proud of it.
And if you look at the testimonials from so many of the national disability organizations and leaders in the field – they all love the book. After all the work we have put into the book, we're delighted it’s getting such a great reception.
We have essentially taken our 30-plus years of experience in advising parents who have a child with a disability and put all the answers about future planning into one book.
We literally discuss every important issue that parents need to know about:
Should I become the guardian of my child? What are the pros and cons?
What government benefits are available for my child? How do I get them, maximize cash benefits, and how do you KEEP the benefits year after year?
What are the four or five crucial provisions in a special needs trust?
What do I do if my child has too many assets in his or her name to get benefits?
How do I find residential, recreational and employment resources for my child? What are the best web sites?
How do I calculate the financial needs for my child, building in assumptions about the life expectancy of the child, rates of inflation, taxes, and rates of return on the trust investments?
How do I protect the money I intend to leave for my child if I have to go into a nursing home?
So, as you can see, we're biased….because we feel the book is an incredible one-stop resource to cover all these topics.
FBE : I can see we have just discussed the tip of the iceberg. Would you be willing to have us back sometime for another round of questions?
ARNIE: Absolutely. Thanks for inviting us!
|Attorney and nationally recognized conference speaker, L. Mark Russell, who has a loved one with a disability, has concentrated his Evanston IL law practice for fifteen years on estate planning for families who have a child with a disability. Arnold Grant, former adjunct professor of tax at Chicago-Kent College of Law, is a partner in the law firm of McGuire Woods, LLP and is nationally recognized for his work on issues relating to tax and estate planning.
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