Estate Planning for a Beneficiary With Special Needs

This Article Orginally Published in the Times Reporter on August 10, 2008.

Estate planning involves the development of a plan to ensure that your assets pass at your death to the beneficiaries of your choice at the lowest possible estate tax cost and in a form which best meets your desires and the recipients’ needs. If you have a beneficiary who is minor, a spendthrift, or has a physical or mental disability, having a will or trust which distributes assets outright to the beneficiary can have unfortunate results. Therefore, it is very important to evaluate the needs of your beneficiaries when developing your estate plan. Three examples of situations when you need to evaluate your beneficiaries’ needs are as follows:

1. If you have a minor who will be a beneficiary of your estate, you should consider a trust. If you pass away and a minor is the beneficiary of your will, the court will require that a guardian be appointed for the minor (under 18) to handle the inheritance. Until the minor turns 18, the guardian will be responsible for determining how the inheritance is invested and spent. When the minor turns 18, the minor will receive all of the funds and can spend those funds however he or she desires. It has been my experience that most 18 year olds are not capable of handling those funds and many squander them away. By establishing a trust, you can name someone to handle the inheritance well past the age of 18 and to determine when the minor is capable of handling the funds on his or her own.
2. If you have a beneficiary who you consider to be a spendthrift or who has creditor problems, you should consider a trust. If the spendthrift receives his or her inheritance outright, his or her creditors can attach those funds as soon as the beneficiary receives them. With a trust, you can appoint a trustee who can hold the funds until there is some certainty that there are no creditor problems for the beneficiary and the trustee believes the beneficiary is capable of handling the inheritance.
3. If you have a beneficiary with a disability and that person is eligible for certain governmental programs or may be eligible in the future, you should consider establishing a special needs trust for that beneficiary. If the beneficiary receives this inheritance outright or without having the proper language in the trust, he or she will be ineligible for governmental assistance. In a special needs trust, a trustee holds the funds for the beneficiary. The terms of the trust allows the trustee to provide for certain luxuries for the beneficiary but can not be used for any basic needs such as food, clothing, or shelter. If properly drafted, the disabled beneficiary can still qualify for various governmental programs and have a fund to be used for vacations, recreational activities, education, and medical attention above what the governmental program would pay.

If you have one of these situations, please contact your local estate planning attorney for assistance. 

NOTE: This general summary of the law should not be used to solve individual problems since slight changes in the fact situation may require a material variance in the applicable legal advice.