If you have a child with special needs, estate and financial planning is probably different because the need to provide a child with lifetime financial support impacts every area of your financial life, from how you balance your goals to which investments you choose; from the amount of insurance you purchase to how you pass on your estate to your next of kin.
Definitely, early planning in this area could be critical and make all the difference in the life of the disabled child, as well as that of his or her siblings who may be left with the responsibility of caretaking (on top of their own careers and caring for their own families and, possibly, ageing parents).
As parents of a special needs child, you may have already asked yourselves some of the most pressing questions:
• Where is your child going to live when he/she can no longer live with you?
• Will he/she move in with a sibling or into a group home?
• Who will make the decision?
• Who will monitor the child's care when you are no longer there?
• Will he/she be in a position to administer his/her own affairs?
• Will the child, upon attaining adulthood, be able to manage that share of the inheritance which you may be considering to leave directly to him/her?
It is never too soon to begin answering these questions and making sure that the living and support arrangements for the disabled child are in place.
Should you leave the estate in the hands of other family members?
Some parents choose to avoid the complication of proper planning and opt to bequeath their estates to one or more of their healthy children, relying on them to use the funds for the benefit of their disabled sibling.
While this option may seem like a simple solution, it may not necessarily be a good idea and could in fact backfire.
First and foremost, it puts the healthy child in the difficult position of having to decide how much of his/her money to spend on his/her disabled sibling. Besides, this type of "moral obligation" on the part of the healthy sibling is not legally binding and may be ignored or interrupted due to disinterest and conflicting needs of the sibling. Moreover, such funds can fall prey to judgments or personal separation settlements against the sibling, or can be lost in bankruptcy.
Last but not least, the healthy child who receives the funds may die before the disabled sibling without putting these funds aside in his/her estate plan. If this were to happen, the money would go to the heirs of such child, thus leaving the disabled person penniless.
Should you consider setting up a Special Needs Trust (SNT)?
When parents intend to leave funds to a special needs child, either throughout their lifetime or upon death, this could be done in the form of a trust. A trust set up for the care of a disabled child is called a "Special Needs Trust". This type of trust makes it possible to appoint a trustee to hold property for the benefit of your disabled child both during your lifetime and more importantly after you are gone.
The main reasons for establishing this kind of trust for your disabled child are usually associated with achieving independence for your child. The benefits include:
• control of trust assets;
• protection from friends;
• protection from spouses and creditors, and most importantly
• professional money management.
The SNT would consist of a trust fund with directions for the use of the assets. The disabled person would be the beneficiary of the SNT and thus the person for whom the trust fund has been created. The trustee would be the person who determines how to invest the assets placed under the trust and how to use the money on behalf of the beneficiary, throughout his/her lifetime.
The trust fund would terminate either upon the expiration of a predetermined time period or upon a specific event occurring (such as, for example, the death of the disabled beneficiary). The trust deed would also specify what would happen with the remaining funds held under trust upon the demise of the disabled beneficiary. Usually, family members (such as the other siblings and/or their next of kin) or charitable organisations would be listed as the 'remaindermen', that is, those taking what remains in the trust.
The trust deed may also include a provision that if the disabled beneficiary has been certified by his/her treating physician that the disability no longer interferes with the disabled person's mental and/or physical abilities, then the trust can terminate at that point. Thus, the trustee would distribute the trust assets either outright (that is, in one lump sum) to the beneficiary or, to safeguard against possible relapses, the distribution could be made gradually in increments of say for example, ten per cent over ten years or 20 per cent over five years.
(To be continued)
Dr Chetcuti Ganado is legal advisor at Bank of Valletta plc's Trustee Services Unit. BoV is licensed to provide trustee services by the Malta Financial Services Authority.