Deciding how to leave your assets to your kids is tricky enough. If your adult child has a chronic disability, the task is much more complicated.

Estate planning is never easy, if only because it means thinking about protecting your loved ones when you’re no longer around. It’s bad enough making plans to protect self-sufficient heirs who take care of themselves and an inheritance. However, it can be a real challenge when planning for heirs with special needs for a variety of personal and legal reasons. Unfortunately, as The Wall Street Journal Online recently pointed out, with the economy and politics as they are, there are new concerns to bear in mind as you plan.

Both the State and federal budgets are strapped for cash and the burden is falling on Medicare and Medicaid. It’s up to the Congressional Special Committee to consider the future of Medicare now, but many Medicaid programs already are feeling the squeeze with tighter income restrictions for benefits and services.

Of course, much of the disabled population (12% of the overall population) relies on state and federal services for those services that they couldn’t afford in the private market. To plan for an heir with special needs, then, means planning to provide for them without risking their main sources of care. Now, more than ever, that means a “special needs trust,” tailored to provide the inheritance as a safety net without endangering the continuation of benefits. [Sidebar: Sometimes an older parent can make this move kill two birds with one stone. How? They create the trust now for themselves and a loved one with special needs so that both qualify for government benefits, once the “look back” period has past for eligibility disqualification. As budgets get tighter, expect greater governmental scrutiny of such moves.]

The other major issue, and a related one, is housing. Many Americans with special needs live in group housing programs. These programs are, in turn, subsidized by government agencies, but are increasingly unable to meet demand and are cash-strapped. For one, the same political/economic pressure is keeping those agencies from expanding.

At the same time, there simply are more prospective residents due to lengthening life expectancies. The US would have had to expand its residential-services capacity by 28% to meet the demand as of two years ago. Clearly, housing has been an issue and it will only get worse.

Amidst all of this uncertainty, you still need to plan where your loved one will live. This might mean another form of trust. For example, a “Qualified Personal Residence Trust” (QPRT) would provide that you live in your home until your death, but that your family member with special needs would live there (without disqualifying ownership). Great care would need to be given in the preparation of such an arrangement. Also, it may be possible to provide a home to shelter several persons with special needs. For example, say several families pool resources, or even to leave a home to a non-profit that can convert the home into a new group home. The options are limited by your creativity.

Ultimately, the best plan will depend on your own unique family circumstances, as well as the current state and federal laws governing benefits and services. Unfortunately, according to a recent study by Arc, an advocacy group, only one-third of affected actually has plans to control what happens when the caregiver grows old and after they are gone.

Bottom line: Remember to engage qualified legal counsel to help you navigate the regulatory minefields.

Reference: The Wall Street Journal Online (September 3, 2011) “Taking Care of Disabled Heirs


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