Estate Planning Considerations for Parents of a Disabled Child
Although estate planning is important for everyone, it can be especially critical for parents of a disabled child. Below are some important estate planning issues for you to consider if your child is disabled.
Typically, parents want all their children to receive an equal share of their property upon their deaths. However, if one child is disabled, that child may not be able to provide for himself or herself in the future. Should all or most of the estate be made available for that child’s needs through a trust for that child? Should all assets be given to the nondisabled children so that the disabled child will be certain to qualify for government benefits? Should all assets be left in a “pot” trust for the benefit of all children? The answers to these questions depend on the extent of the family’s wealth and other circumstances.
You may wish to purchase life insurance made payable to a trust that would provide for your child upon your and your spouse’s deaths. A trust arrangement would allow a responsible person or bank (“the trustee”) to hold and administer your assets or a portion of your assets after your and your spouse’s deaths for the benefit of your child during the child’s lifetime. The trust could be set up in a way that would not disqualify your child from receiving governmental benefits. This would allow your assets to be available for the child’s needs without disqualifying the child from receiving governmental benefits such as Medicaid. These types of trusts are intended to supplement not replace public benefits.
Qualification for government benefits often requires that a person “own” only a very small amount of property. If you do not want to disqualify your child from receiving public benefits, the trust must be carefully drafted. Generally, the trust must be totally discretionary. That means that the trust arrangement cannot impose any obligation upon the trustee to support the child or to distribute funds to or for the benefit of the child. However, the trustee is authorized by the trust to use the assets of the trust to enhance the child’s quality of life when the trustee feels that it would be appropriate.
In addition to a trust, an effective estate plan consists of a Last Will and Testament. A will can be used to designate a person to act as guardian of your child should both you and your spouse die or become incapacitated. A guardian has the physical custody of the child and is responsible for the child’s physical and mental well being. In addition to his or her many fiduciary responsibilities, a guardian must periodically report to the probate court.
A guardian may be appointed for both a minor (a person under 18 years of age) and for an incapacitated individual. However, there are different requirements for the appointment of a guardian for a minor and for an incapacitated individual. If a child is impaired by reason of mental illness, mental deficiency, physical illness or disability or other cause, not including minority, to the extent of lacking sufficient understanding or capacity to make or communicate informed decisions, a parent may need to become the formal guardian of his or her child once that child turns 18.
Ideally, an estate plan should be set up to minimize any financial hardship a guardian would suffer by reason of serving. It should also allow the guardian to take actions for the benefit of the child even though those actions might incidentally benefit the guardian. For example, a guardian should be able to remodel a bathroom to be handicapped accessible at the expense of the estate or trust even though that action may add value to the guardian’s home. A guardian and his or her family should be able to move into your home without paying rent if living there would be in the best interests of your disabled child.
Under Michigan law, by executing a properly drafted power of attorney, a parent of a minor or the guardian of an incapacitated individual, may delegate to another person for a period not exceeding 6 months, any of the parent’s or guardian’s powers regarding the care, custody or property of the minor child or incapacitated person. In other words, if you left your child in the care of another person (perhaps a grandparent or other relative) for an extended period (perhaps while you go on vacation for a week) and executed a proper power of attorney, that relative could consent to medical treatment for the child if the need arose.
While a guardian is responsible for the child’s physical and mental well being, a conservator manages the property of a minor or of an individual who is unable to do so for himself or herself. A parent may nominate a conservator for his or her child in the parent’s will. A conservator must submit annual accountings to the probate court. However, if a child will never be able to manage his or her financial affairs, in most cases, it is better to have set up a trust for the child. Any trustee or conservator must be willing to accept the responsibility and must be a trustworthy and financially responsible individual or entity.