Beyond Special Needs Trusts: 3 Additional Estate Planning Considerations for Special Needs Families

By Joanna R. Adu

When engaging in special needs planning, advising clients about the benefits of establishing a special needs trust has presumably become second nature. However, that should not be the end of the conversation. Why? There are likely more steps that clients should take to ensure the uninterrupted financial well-being of their special needs loved one, including instructive communications to all related persons about making monetary gifts to the special needs individual, obtaining legal guardianship to ensure that caregivers can continue to manage the financial (and other) affairs of the special needs individual once they become an adult, and maintaining a current special needs letter of intent, which can provide a comprehensive overview of the needs of the special needs individual for use by successor caregivers and trustees in providing the most appropriate care going forward.

1. Communication Is Key

Your well-meaning family members can unintentionally threaten your loved one’s eligibility for special needs benefits. It is hard to imagine a more frustrating scenario than when a client who has spent significant time and money creating a special needs trust to protect the eligibility of their special needs loved one in receiving means-tested benefits such as Supplemental Security Income (SSI) and Medicaid, later has to deal with their loved one’s loss or risk of loss of those same benefits because a well-meaning family member made a direct beneficiary designation or testamentary bequest to the special needs individual.

In working with clients to establish a third-party special needs trust—meaning a trust that has been established and funded by anyone other than the special needs beneficiary—I always provide a template donor letter for clients to use going forward. The letter advises of the existence of the third-party special needs trust, explains how that trust relates to eligibility for means-tested benefits, and provides instructions for making gifts—including testamentary bequests—for the benefit of the special needs individual.

If the special needs individual only has a first-party or self-settled special needs trust, meaning a special needs trust that has been funded with the assets of the beneficiary, a separate third-party special needs trust should be established, whether as a standalone or a testamentary trust, if there are persons who wish to leave money or other assets for the benefit of the special needs individual. Third-party assets should never (ever) be contributed to a first-party special needs trust as there are material differences between the two types of trusts, including age limitations and Medicaid reimbursement requirements, among others.

2. Adult Legal Guardianship/Conservatorship

If the special needs individual is a minor, and the nature of their disability renders them largely reliant on caregivers to manage their daily affairs, it’s essential for the primary responsible individual to obtain legal guardianship over the special needs individual when they turn 18. Otherwise, caregivers will be left without legal authority to continue handling the financial affairs of what is now a special needs adult, including payment of expenses and management of financial accounts for that person. The primary responsible individual may also need to establish an ABLE account, if none exists, and be prepared to manage an ABLE account on behalf of the individual with special needs.

The specific requirements for obtaining guardianship (sometimes referred to as a conservatorship, depending on the state that your client is in) vary by state but generally involve a court’s determination of the nature and extent of incapacitation of the special needs individual, the nature and extent of personal affairs requiring management, and the appointment of a legal guardian (or conservator) for that individual. Upon the court’s entry of a guardianship that includes financial management, the appointed guardian then has the legal authority to make financial decisions and work with third parties on behalf of their ward.

3. Special Needs Letter of Intent

A special needs letter of intent (LOI) is a nonlegal document used to “memorialize”—put into writing—certain instructions, preferences, and general need-to-know information about a dependent with special needs. Be careful that the information and instructions contained in the LOI do not contradict the provisions of the special needs trust or any other estate planning document.

A well-drafted LOI should cover most, if not all, aspects of the special needs individual’s life, including:

• Healthcare (doctors, specialists, therapies, and medications)
• Federal and state benefit programs received or anticipated to receive in the future
• Lifestyle (food and clothing preferences, allergies, favorite activities, daily routine, religion, extended family members)
• Housing needs
• Education
• Employment
• Finances (bank accounts, monthly income, and expenses)

Additionally, the LOI should describe the level of independence of the special needs individual, including their ability to handle money, transportation, self-care, etc. Generally, the LOI should be written so the successor caregiver can easily understand the instructions, expectations, and intentions for the person with special needs. In addition to providing a guideline of current needs and circumstances, an LOI provides a great opportunity to memorialize any concerns that current caregivers have about particular vulnerabilities of the special needs individual that a successor caregiver should be aware of.

The Advisor’s Role

Special needs planning is inherently nuanced, complicated, and critically important for clients who have a loved one with significant special needs. It is not uncommon for clients to look to their financial advisor to steer them toward any essential financial focal points and to route them to other related professionals as needed. Accordingly, maintaining a general ongoing understanding of the relevant considerations for special needs families ensures that all related tasks are adequately addressed, and your clients’ planning will be implemented as intended.

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Joanna R. Adu, Esq., is a shareholder at Lyons & Associates, P.C. in Somerville, NJ. As part of her practice, she works with special needs families like her own in both estate planning and adult guardianship matters.

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