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Estate planning is important for everyone, but for families with disabled dependents, it’s essential. It’s also more complex as there is more than an inheritance to consider. For example, you have to worry about maintaining eligibility for aid programs, long-term care, and ongoing support.
Whether you are the primary caretaker for your child with a disability, your sibling with a disability, your parent with a disability, or any other situation, estate planning protects their future.
An estate plan for a disabled dependent, often involving a special needs trust, is crucial to ensure their long-term financial security and continued eligibility for government benefits like Medicaid and Supplemental Security Income (SSI). These trusts allow you to provide financial resources without jeopardizing their access to these crucial programs.
Estate planning often requires parents to think about minor children and seeing them through to adulthood if the parents die early. That assumes the minor children will grow to become independent and able to manage an inheritance on their own once they are no longer minors.
That is not the case for many families with disabled dependents. Families need to account for the specific needs of the dependent, including the type of ongoing support they will require, both financial and non-financial.
Additionally, many disabled dependents receive help from aid programs, which have eligibility requirements that may be affected by an inheritance. Understanding the aid programs available and how to maintain eligibility is an important consideration for estate planning.
Powers of attorney appoint a person, called an agent, to manage and make decisions regarding their finances, in a financial power of attorney, or their medical needs, in a healthcare power of attorney.
A healthcare power of attorney is only activated when the individual is incapacitated and cannot make decisions on their own. A financial power of attorney can be set up a few different ways. A durable power of attorney becomes active immediately but is only used when the individual is incapacitated. A general power of attorney provides the agent the ability to act even when the individual is not incapacitated. This is a good solution for individuals who are mentally competent but for whom regular financial matters are overwhelming.
Importantly, powers of attorney require the disabled dependent to be competent to sign. If that is not the case, then a guardianship or conservatorship may fit your needs better.
A special needs trust is often a good choice for families with disabled dependents. Special needs trusts are specifically designed to maintain eligibility for needs-based aid programs like Supplemental Security Income (SSI) and Medicaid. The beneficiary must meet the definition of “disabled” as set by the social security administration.
Special needs trusts have some limitations on what the funds can be used for, but ultimately often raise the quality of living for the beneficiary much higher than government aid alone. A trustee is responsible for the management and distribution of assets and ensuring all the rules of the trust are followed.
A will can state who should inherit assets, but the inheritance will generally be given outright, which is often unideal for someone with a disability. There are other ways to distribute assets more thoughtfully and with more control, so the disabled dependent doesn’t lose benefits and has the support they need.
Without a will, the estate is distributed according to Wisconsin’s intestate laws. How the assets are divided will depend on the individual’s biological or legal relationship to you. They could receive all or a hefty portion of the estate if they are your spouse or child. If they are a more distant relation, they may receive nothing at all even if you are the primary care giver.
Estate planning with disabled dependents can be challenging, and it’s highly recommended you work with an attorney to avoid the common mistakes people make. These mistakes can be very costly–they can cause disabled dependents to lose benefits or not receive available benefits they are entitled to. They can also cause great uncertainty for vulnerable loved ones during a stressful time. Here are some common mistakes to avoid when estate planning when you have disabled loved ones.
Why It’s a Mistake: Leaving assets to someone on government benefits can cause them to lose those benefits.
How to Fix It: Consider using a special needs trust, which is designed to help them maintain their eligibility for aid-based programs.
Why It’s a Mistake: While a hopeful thought, many times it doesn’t work out that way. Siblings, other family members, or friends are often unable to dedicate the same amount of time and money to their care that you have. It’s also quite possible their needs will change over time. Even when there is a willing family member, sometimes it just proves to be more than they can reasonably handle.
How to Fix It: Consider all estate planning options available and how those people can still help. Estate planning can include trustees for the management and distribution of assets, and agents for financial and healthcare powers of attorney. Trusts can help fund additional care providers and services. Guardians and successor guardians can be named, as well as transition plans.
Why It’s a Mistake: A disabled dependent will likely need lifelong support. Dividing assets equally may reduce the quality of life for your disabled dependent while raising the quality of life of another heir.
How to Fix It: Consider the unique needs of each of your potential heirs and whether they will shoulder additional responsibilities when you are gone. Communicate your decisions with care to avoid unpleasant surprises and resentment. Reasonable heirs may very well understand and even appreciate the tradeoff receiving a smaller inheritance but getting the peace of mind that their sibling is taken care of.
Why It’s a Mistake: Your loved one may be entitled to benefits that make their life easier. Without determining what they qualify for, you may accidentally disqualify them from programs they could benefit from.
How to Fix It: Look at federal, state, and local programs available and their eligibility requirements. Create an estate plan that maintains their eligibility, so they don’t lose access to benefits.
Ensure your loved ones are protected today. Contact our Wisconsin estate planning attorneys for a comprehensive estate plan.
