Special Needs Planning: Testamentary vs. Revocable Trusts

If you have a child with special needs, you should take great care in planning for their future by incorporating special needs planning into your overall estate plan. One of the most effective ways to prepare for their future is to establish a Special Needs Trust tailored to the individual needs of your loved one.

It is important to be aware of situations where leaving money directly to your child with special needs may cause more harm than good. It is difficult to determine whether an individual with special needs will be able to make proper financial decisions for themselves, especially if they have no previous experience doing so. Leaving money directly to a loved one with special needs may cause them to lose public benefits that are currently paying for their daily and medical care. The money you leave in your Will to an heir with special needs will only cover the cost of daily living and medical care for one to three years, on average. After this time, when the assets have run out, your child will need to reapply for government benefits, and may be left with no means to cover medical expenses while they are waiting for their new benefits to take effect.

To avoid these problems, establish a Special Needs Trust which provides supplementary income to your loved one with special needs. The government cannot use this trust against them when determining their eligibility for disability and other public benefits. It is important to know that there is more than one type of special needs trust, and there are distinct advantages to each one. Make sure you choose the right one for your child with special needs.

A Testamentary special needs trust is created in a Will, and becomes effective once the parents or primary caregivers of the child with special needs have passed. Essentially, the Trust is created when the decedent’s Will is probated, and all assets are transferred into the Trust.

A Revocable Living Trust, or Living Special Needs Trust, differs in that in can be established while the parents or caregivers are still living. Assets placed into the trust can only come from people other than the beneficiary of the trust, and they can be accumulated on a monthly or weekly basis throughout the parents’ lifetime.

Your loved one with special needs may profit in several ways from the use of a Revocable Living Trust as opposed to a Testamentary trust. Trustees manage a Revocable Living Trust, which is created separately from a family’s estate for tax purposes. Since this trust is established during a primary caregiver’s lifetime, the trustees are usually the parents. This allows those who know the individual with special needs best to be able to make an organic plan that will grow under the right circumstances.

Another advantage to a Revocable Living Trust is that it establishes a pattern that may be used by future trustees. Parents who, as trustees, write checks for daily and monthly expenses from a Living Trust are showing what types of things will be acceptable expenditures from the Trust when new trustees take over their responsibilities.

Finally, there is the question of medical or other care for the parents of someone with special needs. More than half of the population will spend time in a nursing home or other assisted care facility toward the end of their lifetimes. If parents of a child with special needs find themselves in this situation and have not set up a separate Living Trust, their estate may be drained before their deaths, leaving nothing to be placed in the Testamentary trust.

All special needs planning must be adapted to fit the circumstances of the beneficiary, which will be very different on a case-to-case basis. A Revocable Living Trust allows for the most flexibility and security. Assets can be built up over time, and the Trust will continue without interruption in the event that something unexpected happens to a parent or primary caregiver. An experienced special needs planning lawyer can set up the right trust for you and your loved one.

Bernard Krooks is a New York Elder Law and New York Estate Planning lawyer with offices in White Plains, Fishkill, and New York, New York. To learn more about New York elder law, New York estate planning, NY elder law, New York special needs planning, visit Littmankrooks.com.