Identifying Bad Advice

McHenry County & Crystal Lake

As a parent or grandparent of a disabled child, there are many considerations to create an effective estate plan. In my last Article, I discussed the wording that is necessary for a Special Needs Trust to be enforceable. The primary consideration in the enforceability of a Special Needs Trust, is to safeguard those government benefits that the child is entitled to and use the trust funds for additional services and benefits not covered by those benefits provided by the government.

There have been numerous "cheap and easy" ways to avoid going to the time and expense of creating a proper Special Needs Trust. Unfortunately, those "cheap and easy" ideas are terrible advice.

The first most common bad advice is that if you have an adult child with disabilities the government will "take care" of that child. That is true only to an extent. Government benefits do not give your loved one a good quality of life. The benefits only cover the bare minimum and the basics, and sometimes not even that. Therefore, having an effective Special Needs Trust to cover those extras is important. The government is not going to take care of your child in the same manner you would. If you are gone it is imperative that you leave specific instructions in a properly worded Trust to take care of your child.

Another piece of bad advice that has been given out over the years is to simply add a Spendthrift provision in a Living Trust. A Spendthrift provision does nothing to protect the government benefits your disabled child is entitled to. A Spendthrift provision refers to safeguarding the assets of the Trust from creditors. If a beneficiary of the Trust runs up debt, has a Judgment entered against them, or otherwise owes someone money, the Spendthrift provision prevents the creditor from getting that money from the Trust. However, that does nothing to stop the government from seizing the funds in the Trust from reimbursement for paid medical and residential services. It is not the way to take care of your special needs child.

Another piece of incredibly bad advice I have heard over the years is to leave all of your assets to your other children, expecting them to "take care" of their sibling. This is very altruistic, and would be nice if everybody's siblings were that kind and caring. Unfortunately, not all siblings are. This is a very risky method of taking care of your disabled child. There is also numerous other issues with this. There would be gift tax ramifications for the sibling giving money to the disabled person. The sibling may have debts that the assets would be subject to and open to seizure by their creditors. If the sibling places the funds in a joint account with their spouse, then one of the spouses files for divorce, the spouse could argue that the money left to the spouse is marital property and the disabled child, for the lack of any legal obligation to give anything to the disabled child would get nothing.

If you have a child with disabilities that substantially impair their ability to provide for themselves, it is imperative that you take care of them after you are gone with a Special Needs Trust.