Five Most Common Estate Planning Mistakes That Parents of Children with Special Needs Make

 1.             Procrastinating Estate Planning Altogether

 For many parents with children with special needs, estate planning feels very overwhelming, and it’s easy to put it off for another day. Unfortunately, delays can be costly, leaving your child unprotected in case of an unexpected event.  If both parents pass away without a proper plan in place, a direct inheritance can disqualify them from vital public benefits. The only option in such circumstances may be to establish a trust with a Medicaid payback provision, meaning that any remaining assets in the trust must be paid back to the state after the child’s death. Furthermore, these trusts can be very restrictive.

 Additionally, nominating a guardian is crucial. Unlike typical children, special needs children may require a guardian even after they reach the age of legal adulthood. Without proper planning, the court may step in to make decisions for your child — decisions that may not align with your wishes.

 Solution: Start planning as soon as possible. Even if you’re unsure about every detail, beginning the process ensures that there’s some protection in place for your child. You can always update your estate plan as your family’s circumstances change. Creating a suitable estate plan ensures that your child's financial future is protected, that they have the right guardian in place, and that you avoid costly payback provisions.

 2.       Leaving Wealth to One Sibling with the Expectation They’ll Care for the Child with Special Needs

 Many parents mistakenly believe that leaving their wealth to one sibling will ensure that the child with special needs is cared for. However, this can be a risky strategy. Even the most responsible sibling may face unforeseen circumstances, such as personal liability from accidents or divorce. In these situations, the inherited assets could be exposed to creditors, jeopardizing the financial security of the child with special needs.

 Solution: Instead, consider establishing a third-party Special Needs Trust. This creates a safety shield for the assets, ensuring they are protected and specifically designated for the care of the child with special needs, regardless of the sibling's personal financial circumstances.

 3.       Not Choosing the Right Attorney

 One of the most critical mistakes parents make is not working with a bona fide special needs planning attorney. A bona fide attorney isn’t just experienced—they possess specialized knowledge of the unique challenges individuals with special needs face. Even high-functioning children who don’t expect to rely on government benefits need protection from exploitation, and a Special Needs Trust (SNT) can provide that safeguard.

 Solution: Work with an attorney who has genuine expertise in special needs planning, ensuring your child’s financial future is properly protected.

 4.       Dividing Assets Equally Among All Children

 Parents often wish to divide their assets equally among their children as a way of showing equal love and fairness. However, for a child with a disability who may not be able to work or fully support themselves, equal division may not meet their future needs.

 Solution: Consider enhancing the inheritance for the child with special needs using a whole life insurance policy. This approach can ensure that siblings do not feel treated unfairly and that the special needs child’s financial security is prioritized.

 5.       Naming the Child as Beneficiary of Retirement Accounts

 Parents often list their children as direct beneficiaries of their retirement accounts, such as 401(k)s or IRAs. While this seems natural, it can be disastrous for a child with special needs. A direct inheritance can disqualify them from vital public benefits.

 Solution: Instead of naming your child directly, designate the Special Needs Trust as the beneficiary of retirement accounts and life insurance policies. This ensures that the funds are protected and managed for your child's benefit without affecting their eligibility for government programs.

 Do you have more questions or need to chat with me? Visit my website -

https://myspeciallegalplanning.com/

 

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