by Thomas D. Begley, Jr., CELA
There are a number of alternatives to a Third Party Special Needs Trusts. These include the following:
- Disinherit a Child. The problem with this strategy is that one cannot be certain that public benefits, as we know them today, will continue forever. Many public benefits have been cut back in recent years and there is no guarantee that current benefits will not be reduced as well. Many parents who have severely disabled children, whose needs are covered by public benefits, will consider disinheriting the children, but they should be made aware that current public benefits may not be there when the child needs them in the future.
- Leave Money to the Child. The problem with this approach is that unless the funds being left to the child are very significant, they may not last long if the child’s needs, particularly medical needs, are great. It is usually better to maintain public benefits and establish a trust for needs or wants that will not be covered by public benefits.
- Leave Funds to Sibling. This is the common strategy that frequently backfires. The idea is to leave the share of the person with disabilities to a brother or sister with the understanding that the brother or sister will use that money to care for the child with disabilities. The problems occur when the child to whom the funds are left is sued by a creditor, is divorced, or simply says, “I want to use this money for myself, not in the Will says that I have to use it for my sibling with disability and I am not going to use for that purpose.” Sometimes it is the sibling that makes this decision, but frequently it is the spouse of the sibling who pushes for that result.
- Pooled Trust. A Pooled Trust is a good solution for relatively small amounts of money. If the trust is less than $100,000, Pooled Trust makes sense. If it is between $100,000 and $200,000, a Pooled Trust should be compared to a Third Party Special Needs Trust. If the amount involved is in excess of $200,000, a Third Party Special Needs Trust is almost always the best solution.
- ABLE Account. New Jersey has adopted legislation authorizing ABLE accounts. These accounts are expected to come into existence sometime in the Fall. A problem is that not more than the gift tax annual exclusion amount can be contributed to an account in any one year and no beneficiary can have more than one account. The annual exclusion gift tax exemption for 2016 is $14,000. So, if the inheritance is $14,000 or less, an ABLE account might make sense.