How to Avoid the Common Pitfalls of Special Needs Planning

Oct 27, 2023 | Estates Planning and Asset Protection

Caring for a loved one with special needs can come with a steep learning curve. 

You might encounter medical terms you’ve never heard of, equipment you’ve never seen, bureaucratic systems you didn’t know existed, and challenges you’ve never thought about.

As a special needs caregiver, it’s common (and understandable) to get so wrapped up in managing the very real, sometimes life-or-death challenges of daily life that you end up procrastinating on planning for your loved one’s long-term care. 

Procrastination is especially common here because planning for long-term care and the specialized needs of a special needs loved one is an involved process. Yet loved ones can reduce their stress and achieve the best possible outcomes if they anticipate some of the common pitfalls and act now. 

Five common mistakes in special needs planning

As estate planning professionals, we’re here to help you avoid the most common mistakes we see in special needs planning. Be on the lookout for these five missteps as you establish a plan that meets your family’s needs. 

1. Procrastinating or trying to cut corners 

Estate planning can feel overwhelming for many reasons, whether it’s because it means thinking about what could happen when you pass away or trying to tackle financial questions to ensure your family and friends are cared for. 

This feeling of overwhelm can be compounded when special needs complications are added to the mix, which often leads to families procrastinating the creation of a special needs trust (SNT) or other estate planning vehicles for individuals with special needs.

It can be helpful to remember that your passing isn’t the only situation to account for. If you become seriously injured, ill, or incapacitated in some way, everyone in your life will be grateful you had the foresight to make appropriate arrangements.  

But being proactive won’t do you much good if you cut corners while you do it. 

We understand the temptation to DIY a special needs estate plan using an online template or a cookie-cutter, one-size-fits-all legal service in the name of staying on budget for your loved one’s needs. But just as you wouldn’t try to diagnose and treat a special needs individual without input from medical experts, you need a knowledgeable professional to craft an effective estate plan.

Working with an estate planning attorney is the best way to ensure your plan is specifically designed to meet your loved one’s long-term needs while maintaining eligibility for public benefits.

2. Thinking special needs trusts are only for minor children

If you have a special needs minor child, you definitely need a good estate plan. But if you are the guardian of an adult special needs individual and haven’t created a trust yet, don’t panic. You haven’t missed the boat.

There are several types of special needs trusts, and they vary in terms of how they can be funded and who the beneficiaries can be. Whether you’ve put off putting plans into place or the disability became an issue later in life, there are still options available for adults who will need long-term care.

3. Creating a generic trust

Establishing a generic trust (i.e., your standard living trust) may sound like the right move if you’re looking to protect your loved one with special needs. But they might not provide the benefits you’re looking for. 

If you have a loved one with special needs, a generic trust could potentially jeopardize the beneficiary’s eligibility for essential government benefits. Trusts categorized as ‘countable resources’ may impact eligibility for vital programs like Supplemental Security Income (SSI) and Medicaid.

That’s where a Special Needs Trust (SNT) comes in. It’s designed to complement, not substitute, the government benefits. This ensures your loved one maintains access to crucial resources and the benefits of the trust. 

4. Underfunding your trusts

How a trust is funded will determine which type of trust you need. The most common type of trust, a third-party trust, is best when included assets are donated by you or other family members and friends.

You don’t need to be a millionaire to create a third-party special needs trust, but it is important to ensure the funds match the stipulations for care you have outlined. These trusts should be irrevocable (meaning you can’t get the assets back for personal use) and can be funded by real estate properties, checking or saving accounts, retirement portfolios, etc. 

If you lack liquidity, consider taking out a life insurance policy naming the trust as the beneficiary. You can also invite friends and family to contribute to the trust or name it as a beneficiary in their own estate plan.

Again, if your loved one will rely on SSI Medicaid or disability payments, working with a knowledgeable trust and estates attorney is the best way to ensure you don’t make mistakes that could affect their eligibility or make the SNT subject to Medicaid payback provisions.

5. Not adequately preparing your trustee

Serving as a trustee is a major responsibility. It’s important to choose someone you trust to take their stewardship seriously, and that will always act in the best interests of the beneficiary.

The right person may not always be a family member or close friend. When the trust becomes active, siblings could have their own lives and expenses to manage, making it difficult for them to learn about the nuanced laws that govern special needs trusts.

Whether you select a professional trustee or a family member, make sure they understand the legal ramifications of their choices.

Avoid special needs planning challenges with help from Texas estate planning attorneys

Planning for the future may seem daunting, but understanding common mistakes and how to avoid them can make a difference. 

For guidance in creating effective solutions for long-term care, schedule a consultation with our team at SMCESQ PLLC today to develop a personalized plan.

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