February 6, 2009

10 costly mistakes to avoid when planning for your special needs child (Part 1 of 3)

By Robert P. Bergman, Attorney at Law
Special to the Times

This article is the first of a three-part series that examines the unique estate planning requirements of families with children, grandchildren or other family members (such as parents) with special needs. It has been adapted from material provided by the Academy of Special Needs Planners, of which I am a member.

There are many misconceptions in this area that result in costly mistakes in planning for these special needs beneficiaries. Here are the first of ten of the most common “costly mistakes” that can be made when planning for beneficiaries with special needs:

COSTLY MISTAKE #1: Disinheriting the child. Many disabled people rely on SSI, Medicaid (MediCal in California) or other government benefits to provide food and shelter. You may have been advised by otherwise well-meaning individuals or advisors to “disinherit” your disabled child - the child who needs your help most - to protect that child’s government benefits. But these government benefits rarely provide more than basic needs and this “solution” does not allow you to help your disabled child after you become incapacitated or deceased. When a child requires, or is likely to require, governmental assistance to meet his or her basic needs, parents, grandparents and others who love this child need to consider establishing a Supplemental Needs Trust.

Planning Tip for Parents: It is unnecessary and, in fact, poor planning to disinherit a special needs child. If you have a special needs child or other beneficiary, you need to consider a Supplemental Needs Trust to protect public benefits and care for the child during your incapacity or after your death.

COSTLY MISTAKE #2: Procrastination. Because none of us knows when we may die or become incapacitated, it is important that you plan for a beneficiary with special needs early, just as you should for other dependents such as minor children. However, unlike most other beneficiaries, a special needs child may never be able to compensate for a failure to plan. A minor beneficiary without special needs can obtain more resources as he or she reaches adulthood and can work to meet essential needs, but a special needs child may never have that ability.

Planning Tip for Parents: Parents, grandparents or any other loved ones of a special needs child face unique planning challenges when it comes to that child. This is one area where you simply cannot afford to wait to plan.

COSTLY MISTAKE #3: Failure to coordinate a planning team effort. It is critical that special needs planning be conducted, as much as possible, with a team of advisors:

1. an attorney who is experienced in this planning area;

2. a life insurance agent who can ensure that there will be enough money to maintain the benefits for the special needs child;

3. a CPA who can advise on the Supplemental Needs Trust’s tax return;

4. an investment advisor who can ensure that the trust fund’s resources will last for the child’s lifetime, and;

5. other key advisors that may support the goals of the trust going forward, such as a Care Manager for the child.
Planning Tip for Parents: Special needs planning dictates that you have advisors that work together to ensure that there are sufficient trust assets to care for your child throughout his or her lifetime.

COSTLY MISTAKE #4: Choosing the wrong trustee.

During your lifetime, you can manage your child’s Supplemental Needs Trust. When you are no longer able to serve as trustee, you can choose who will then serve as trustee according to the instructions that you have provided. You may decide on a team of advisors and/or a professional trustee. Whomever you choose, it is crucial that the trustee is financially savvy, well-organized and, of course, ethical.

Planning Tip for Parents: The trustee of a Supplemental Needs Trust should understand your objectives for your special needs child and be qualified to manage and invest the assets in a manner most likely to meet those objectives.

Next month, I will present more of the 10 Costly Mistakes to Avoid When Planning for Your Special Needs Child.

Robert P. Bergman is a San Jose estate planning attorney and counselor who devotes his law practice exclusively to assisting individuals and couples plan for incapacity and the eventual transfer of their property to their heirs. Bob specializes in working with parents who have minor children, including special needs children. Bob presents a regular monthly seminar at the Addison-Penzak Jewish Community Center in Los Gatos entitled “Everything You Always Wanted To Know About Wills and Trusts, But Were Afraid to Ask,” and also offers a regular seminar on estate planning for retirement plan asset entitled “The IRA Inheritance Trust – Estate Planning for Retirement Plan Asset..” In his role as a Speaker for the Silicon Valley Chapter of the nonprofit Foundation for Personal Financial Education (www.fpfenonprofit.org), Bob gives regular workshops in companies, municipal agencies, churches and other organizations on the topics of estate planning, asset protection, and special planning for retirement plan assets. Visit his Web site at www.lawbob.com where you can learn more, get on his e-mailing list, register for an upcoming seminar, schedule a consultation and read other articles on estate planning topics that Bob has written. You can also reach him by e-mail at rpb@lawbob.com or by telephone at (408) 247-0444. All inquiries are confidential. This article is intended to provide general information about estate planning ideas, concepts and laws, and is not to be relied upon as rendering legal advice about your particular situation. No attorney-client relationship is created by this article. The laws concerning estate planning, wills, trusts and estate taxes are very complex, often state-specific and change on a regular basis. Consult with an experienced attorney before taking any action that would affect your personal or business matters.