Parents with a dependent adult child have special Life & Estate Planning considerations. The eventual distribution of the assets they leave behind is never going to be simple or straight forward. Phase II of the planning process is to carefully evaluate the current and future needs of the dependent adult child both as an individual and in context of the larger family.
Phase II in Two Steps
- Evaluate. Before you can make any decisions regarding your Life & Estate Plan, you need to evaluate your financial needs and those of your whole family.
- Consider whether you and your spouse are protected if you lose income due to disability. Twenty percent of American adults will experience a period of disability or incapacity that prevents them from working. The economic impact on a family can be tremendous. Be sure to talk to your planner about protection and income replacement.
- Do you have enough retirement funds to support you and your spouse? Remember that most other needs can be covered in other ways (i.e. there is financing for college educations, but not for retirement!)
- What are the other needs of your family? It is important to give consideration to all of your children, even if you have a child who may need more of your assets due to special needs. The death of the parents has a tendency to bring out long-dormant feelings of sibling rivalry. Those emotions may be contradictory to a logical or practical assessment of a situation, but are real nonetheless. Acknowledgment of ALL your children in your Life & Estate plan will go a long way towards keeping strong bonds among them after you are gone.
- Work with a financial planner who can understand the long term goals and will coordinate your financial plan with your Life & Estate Plan. Many benefit programs are means-based. To preserve your child’s eligibility for programs such as Medicaid and SSI, your financial and Life & Estate plans need to be structured to benefit your child while not putting assets in his or her control. Too many assets or too much income can cause benefits to be lost instead of the income or assets being used to supplement the care the provided. Be sure to discuss this issue with other family members who might be planning to leave an inheritance to your child.
- Protect. Once the extent of your finances has been determined and the goals decided, then a properly drafted plan and correctly identified beneficiaries are needed. Your Life & Estate Plan may include a Special Needs Trust (SNT). A SNT allows assets to be used for the benefit of the special needs beneficiary without triggering a loss of services such as Medicaid or SSI. Beneficiary designations on retirement accounts will be updated to correctly pass in a manner that matches your Life & Estate Planning documents.
- Depending on the size of the estate you may choose a privately administered special needs trust or a pooled trust for the benefit of you special needs child.
Phase III Maintenance
Maintaining any Life & Estate plan is crucial for its continued relevance and effectiveness. We all wish that planning was something that once done, could be shelved and forgotten about until the distant future when it is needed. Life changes can have a dramatic impact on your plan, however.
Changes affecting your plan might be family changes, such as births, deaths, marriages, divorces. They might be financial changes such as a reversal of fortunes with your retirement plan, an unexpectedly successful business venture or a windfall in the form of a lottery ticket. They might be circumstantial such as a new treatment or therapy that dramatically changes the condition of a special needs child. There could be policy or institutional changes such as changes to benefit programs, tax codes, or the closing of a financial institution named as a trustee in an old document.
Reviewing your Life & Estate plan on a regular basis gives you the opportunity to fine-tune plans as needs come into focus and make course corrections as necessary.
Next Week: Special Needs trusts. What are the differences between first and third party trusts? What are pooled trusts?
Copyright © 2016 Kirsten Schroeder Larsen, P.A. All rights reserved.