Estate Planning: A Safety Net for Our Children
Ed. note: The information in this piece has been compiled by a PKIDs mom from conversations with attorneys. This parent, as with many PKIDs parents, chose to maintain anonymity to protect the identity of her child.
I'm pretty sure I'll be there for my children until I'm 90 or so. Pretty sure. The alternative is something none of us wants to focus on for very long, especially if we still consider ourselves fairly young and healthy. I've been meaning to get my financial affairs in order for a while now, years actually, just in case that hypothetical cement truck rounds the corner when I least expect it. But it wasn't until I heard a conference speaker describing trusts for children with disabilities that I realized how careless I've been in leaving my estate plans unresolved.
The good intentions and plans I have in mind are useless until they are on paper. My worst guilt accompanied the realization and acceptance of the fact that my children have disabilities which may prevent them from supporting themselves at some point in their lives. One has cirrhosis as a result of hepatitis B infection and may incur huge medical bills if he needs a liver transplant. If I were not around and had not planned for this contingency, how would he manage? Would our savings be drained, the house lost?
Where there's a will there's no way . . .
A simple will is not enough to protect children whose illnesses could impact their daily lives at some point. Some PKIDs parents are also ill themselves and carry the additional burden of worrying about their own physical and mental capacities. A will does not protect your assets if you become incapacitated. It goes into effect only after you die. This means that important decisions regarding the welfare of your children may be left to the courts if you are unable to make decisions. That's not what I want for my children. I want to make sure that they are cared for the way I wish them to be.
In addition, with only a will in place, the estate must go through probate after your death. This legal process is considerably expensive (estimated at 3-8% of an estate's value) and takes time (usually 1-2 years). While the courts are busy ensuring that your debts are paid and accounts of assets are valid and in order, these assets could be frozen. If your family needs money to live on during this period they must go through courts to get it, and it's possible that the courts could deny their request. My kids need more protection than this.
What's the answer?
The answer is to take a "legal approach", a polite term for something so complicated and confusing that we have to consult attorneys to do it properly! There are many options to consider depending on your unique situation. An attorney will help you sort through them and will most likely recommend placing your assets in a trust. It's best to select an attorney experienced in living trusts (and special needs trusts, if applicable). The type of trust depends on the needs of your children and the extent of their disability, but a good place to begin for most people is with a living trust.
How does a living trust work?
Briefly, at the time you set up the trust, you transfer assets from your name to the name of your trust. You control the trust while you're alive and can specify the distribution or management of assets in the trust after your death. As trustee you can change or cancel the trust and do anything with the assets in the trust that you could before (e.g., buy or sell the assets).
You may choose to name a successor trustee such as a close friend or relative to handle the estate after your death. You also have the option of hiring a bank or trust company as corporate trustee if you prefer. They charge a fee but can manage your assets if you desire professional help, become incapacitated or die.
What are the benefits of a living trust?
You'll gain peace of mind by knowing that you have:
You don't have to be rich to set up a trust. Your house may be the sole asset you want to protect for your child so he will have a place to live. If your child's illness causes him to depend on the government for support at some point, without proper planning he could be forced to sell the house in order to qualify for those benefits. Assets such as real estate, stocks, CDs, bank accounts, insurance, jewelry and furniture can be included in the trust. Laws are revised constantly and vary by state, so only an attorney can advise you of the best way to plan for your family.
What do I need to know about government benefits?
It's helpful to have a basic understanding of this complicated subject so that you can ask your attorney the proper questions. There are various types of government benefits available to dependents who need long-term or lifetime care, and PKIDs parents should have some familiarity with the subject if they face the possibility that their child's illness could disable them at some point. Trusts should be specially designed to cover these needs or to be easily changed to cover them at the point the child becomes disabled.
Space doesn't allow for a full explanation here. There are various types and levels of government benefits and a multitude of laws governing definitions and eligibility. As a brief overview, the benefits which most of us in the U.S. have heard of are:
Pension or insurance-type benefits such as Social Security Disability Income and Medicare. These benefits are entitlements based on contributions and are not dependent on a person's financial need.
Welfare or needs-based benefits, which require a person to be disabled (strictly defined by the government) and to meet financial criteria. Included in this type of benefit are Supplemental Security Income, Medicaid, food stamps and Section 8 housing subsidy.
Sliding scale fee benefits, which require a disabled person to pay the government for services in accordance with his/her ability to pay. Department of Human Services and Department of Rehabilitation Services are examples of this type of benefit.
How do these benefits affect my estate plan?
If your child becomes ill and disabled you need to be sure that he/she does not lose eligibility for governmental benefits. In this case, a primary purpose of your trust would be to protect the family's assets and the individual's inheritance from being counted as an asset by the state or federal government. For example, Medicaid and SSI programs treat earned income differently than unearned income in determining benefits.
Ask your attorney about setting up a special needs trust which could be implemented when needed. The special needs trust (or discretionary supplemental needs trust) is set up to provide those goods and services for your child that would not otherwise be available from a local, state or federal government agency. This type of trust provides funds that supplement government benefits rather than substitute for them. The assets you place in a properly worded special needs trust for your child would not be considered countable assets of the child (beneficiary), and are thereby protected.
Should I walk or run to my attorney?
While there is a cost for setting up a trust, it is insignificant when compared to what it can save in terms of probate time and expense, estate taxes, inheritance and when necessary, living expenses for your beneficiaries. Trusts also may provide protection of assets from creditors. For example, if you suffer a long, expensive illness and accumulate huge medical bills before you die, a trust may prevent your heirs from having to sell everything you intended to leave for them in order to pay those bills. This is important to discuss with your attorney as well.
PKIDs families are more likely than most people to need these safeguards since our children, and often a parent as well, have serious or life-threatening illnesses. This short discussion was designed to raise questions which you can discuss with a professional to help you develop a plan to provide for your children.
In the final analysis, the question of why bad things happen to good people transmutes itself into some very different questions, no longer asking why something happened, but asking how we will respond, what we intend to do now that it happened.