Our “Ask a Question” mailbag addresses the question, how to equalize inheritances with a special needs child.
“My estate is only large enough to provide care for my Special Needs child. So how do leave an equal amount to my other two sons? Is there a way to equalize inheritances with a special needs child with siblings?”
When Assets are Limited, How to Equalize Inheritances With a Special Needs Child.
Equalizing inheritances for children when there is a dependent, Special Needs child, can be complicated. Though you wish to treat your kids equally so as to prevent resentment, the idea of dividing your estate can be agonizing if you are not sure how much will be needed to provide care for your Special Needs child.
Review the Special Needs Trust Remainder Provisions.
First, make sure that at the Special Needs Child’s death any remainder stays in the family. This result is good whether the estate will be divided or placed entirely into the Special Needs Trust. If set up correctly, the assets that remain in the Special Needs Trust at your child’s death can pass to the other children free of any debts the child may have. These assets can pass outright, or they can be in protective trusts sheltered from your children’s spouses and creditors. Though they will have to wait, this at least provides the other kids a chance of inheriting.
Include All Children In a Pooled Trust.
Another possibility is providing the other children with a small amount over the term of the Special Needs Trust. Again, if set up correctly, your estate could be held in trust for all your children. The words can be crafted to limit any distributions to the Special Needs child to Special Needs Trust provisions. You can then allow the trustee to distribute some assets to the other kids. For example, a specific amount each Christmas. These distributions can be obligatory or in the trustee’s discretion. There are many options. If this idea appeals to you, we can brainstorm for the terms that best suit your situation.
Consider An Irrevocable Trust.
I will need more information about your assets, but one answer is to form an Irrevocable Life Insurance Trust with Special Needs Provisions. This trust then purchases a life insurance policy on your life. At your death, this life insurance will be outside your taxable estate and unavailable to your creditors. Further, even if your property is entangled in a lawsuit (say you die in a car accident), within a few weeks after your death the Trustee can collect the life insurance and use those funds to provide care for you special needs child, free of legal complications.
Your other children may then divide your other assets. These kids are more likely able to address the complications of an inherited IRA or real estate.
Though the life insurance does require you to pay a premium which reduces your estate, your children may find this cost acceptable. The cost is acceptable because the Special Needs child now has funds available immediately following your death. Further, the other kids can inherit at your death.
Many children prefer this result to the option of waiting for their Special Needs sibling to pass. Not having to wait diminishes the possibility of resentment towards the Special Needs child. Further, family assets such as a farm, vacation home or business remain in the family. Keeping family assets intact is preferable to these assets being sold to cover the Special Needs child’s expenses. Therefore, your other children may even contribute towards the life insurance premium.
I focus my practice on estate planning. And, I am happy to work with you to review your assets with an eye towards equality. I am glad to walk you through your options over the phone or in person. Please feel free to Contact our office for a free consultation. Let’s talk!
Wills, Trusts, Probate, and Estate Litigation It’s All We Do!
Peter Klenk, Esq., LL.M.