In the state of Arizona, ARS Title 14 governs trusts, estates, and protective proceedings.
Estate planning can be a lot like going to the dentist—you know you need to do it, it’s on your to-do list, but you push it off as long as possible. Unfortunately, putting off estate planning has significantly greater consequences than skipping the dentist. The risk is even greater for parents with disabled children, as you’re not just talking about organizing your assets, but providing a plan to care for your disable child in your absence.
The good news is that estate planning doesn’t have to be that difficult. Here are 10 simple steps you can take to implement an estate plan that includes care for a disabled child:
1. Gather Important Documents and Information
The estate planning process becomes much easier when you’re well-organized. Start by gathering important documents and writing down essential information that you and your attorney can use as a reference as you craft your estate plan. Focus on the following, for you, your disabled child, and (if applicable) your spouse:
- Personal information, including social security cards, Medicare numbers, birth certificates, military service records, marriage certificates, and divorce decrees
- Medical information, including a list of healthcare providers, medical history, medications, allergies, pertinent family history, insurance, Medicare and Medicaid documents
- Liquid assets, including bank accounts, brokerage accounts, stock certificates, life insurance policies, annuities, pensions, retirement plans, and trusts
- Illiquid assets, including property deeds, vehicle titles, and information on valuable possessions such as jewelry, art, furniture, collectibles, electronics, and guns
- Legal documents, such as a power of attorney, will, healthcare directive, or trust agreement
- Digital assets, including username and password information for digital accounts
As you’re collecting documents and information, designate a file cabinet or bin where you can store everything, and let a loved one know where this cache of documents is. When you pass away, it’ll be extremely beneficial for your family to have all of your important documents and information in one place.
2. Meet with an Attorney to Plan for Your Needs
An experienced estate planning attorney—especially one who specializes in special-needs, disability, Medicare/Medicaid, or SSI planning—can make a complicated process much simpler. When you find an attorney who you feel comfortable working with, meet for a consultation to discuss your needs and your goals.
You’ll likely discuss what kind of care and assets your disabled child will require, how they qualify for government benefits now and in the future, who you would like to serve as guardian for your child, and if you have other children or heirs whom you’d like to gift assets to when you pass away.
As you sketch out your estate plan with your attorney, be sure that the assets you leave to your disabled child don’t disqualify them for government benefit programs. Programs such as SSI, Medicare, and Medicaid are designed to cover most (if not all) essential medical costs for disabled individuals, but the programs have strict income requirements that will disqualify your child if they have access to too much money. Instead of gifting assets to them directly, your attorney will probably recommend you establish a special needs trust for their benefit (discussed later).
3. Prepare for Incapacity
If an accident or illness renders you incapacitated, you’ll need an authorized agent to handle your affairs and care for your disabled child. Drafting a durable power of attorney will authorize one of your family members, friends, or advisors to handle your finances, and nominating a successor guardian would ensure someone has the legal authority to care for your disabled child, speak with their doctors, and make important decisions on you and your child’s behalf.
4. Prepare for End-of-Life Healthcare Needs
On a similar note, you’ll want to draft a living will to outline your preferences for medical treatment. If you are incapacitated and unable to communicate important medical decisions, your healthcare providers can reference your living will (also known as an advance healthcare directive) to understand your preferences regarding important treatments such as palliative care, resuscitation, and artificial life support.
It’s also helpful to designate someone to serve as your healthcare proxy who can speak with your doctors and access your medical history. Usually this is the same person who you’ve authorized to be your agent with the power of attorney, and you can add medical authorization in the power of attorney document.
5. Formalize Your Funeral Plans
To avoid confusion and unnecessary stress for your surviving loved ones, write down your funeral and burial plans in a non-binding letter of intent. You can include this information in your will, but it’s wise to leave the letter of intent with a loved one in case your family doesn’t open your will until after the funeral. Be sure to include any pre-need services you’ve already paid for (such as with a cemetery or crematorium), and which (if any) of your assets should be used to pay for other necessary services.
6. Establish a Guardianship or Conservatorship
For parents of a disabled child, this step is critical. A standard will-appointed guardian can care for your child as a minor, but you’ll need a court-appointed guardianship or conservatorship to care for them once they reach adulthood. Most parents in this situation will establish the guardianship with themselves as the initial guardians, and they’ll appoint a successor guardian to take over when they die.
7. Special Needs Trust
A special needs trust is the most popular option in estate planning for disabled children. Thanks to its special designation, a special needs trust can provide lifetime income for a disabled child without impacting their eligibility for SSI, Medicare, and Medicaid. A special needs trust accomplishes this by giving full control of the assets in trust to a third-party trustee, who controls both the amount of income payments the disabled child receives, and the frequency of income payments.
As long as the beneficiary’s guardian doesn’t use the income for primary care that SSI, Medicare, and Medicaid are supposed to pay for, the child will retain full eligibility for government benefits. The trust income can then be used for luxuries such as a nicer care facility, advanced/optional treatments, food, travel, etc.
You can establish a special needs trust during your lifetime (called a living trust), or you can order one be formed after your death (called a testamentary trust). If your estate is at risk for estate taxes, or if you have considerable assets subject to probate, it may be advisable to fund a living trust during your lifetime.
8. Direct Your Non-Probate Assets
For the purpose of estate planning, certain assets are designed to automatically transfer to your heirs when you die, while other assets can only transfer to beneficiaries through probate court. Considering how probate can be a long, expensive process, it’s usually best to avoid it as much as possible.
The following assets naturally pass to your heirs through contracted beneficiary designations:
- Bank and brokerage accounts with a transfer-on-death (TOD) or payable-on-death (POD) beneficiary
- Retirement accounts (401k, IRA, etc.)
- Life insurance policies
- Property held as joint tenants or as tenants by the entirety
For those assets, all you need to do is ensure the right people are listed as beneficiaries in the account paperwork. If you find any of the accounts need updated beneficiaries, there is usually a simple form you can submit to the financial institution to change the beneficiary designations.
When considering how to transfer of your retirement assets, keep in mind that transferring a 401k or IRA to a special needs trust will result in the trust having to pay income and capital gains taxes on the gifted assets. Depending on the size of the account, that could be a considerable charge.
However, if you gift retirement assets to an individual, you can avoid capital gains taxes. Because of this, many estate planning professionals advise gifting retirement assets to individuals other than your disabled child (such as other children or relatives), and funding the special needs trust with other assets, such as life insurance proceeds, bank accounts, or brokerage accounts.
9. Direct Your Probate Assets
Assets subject to probate will need to be either dispositioned in your will, or transferred to a trust to avoid probate. Small estates with personal property valued less than $75,000 and real property less than $100,000 can bypass probate. If your estate is larger than that, consult with your attorney to see if it makes sense to use a trust to skip probate.
If you decide to use a trust to bypass probate, you may want to draft a simple pour-over will to catch any assets you forget to transfer to the trust.
10. Leave a Letter of Intent For Your Disabled Child
Even with a thorough plan, there may be a period of time between your death and when your will or trust go into effect. No matter how short this period may be, it helps to leave a letter of instruction for someone to care for your child in the interim. This person will need to know the child’s doctors, emergency contacts, your attorney’s information, the trustee’s information, and a list of obligations such as medical bills for the child.
The instructions in this document are not legally binding, but they will be immensely beneficial for your family during a time that is already emotionally challenging.
For long-term peace of mind, contact us to set up a consultation today. We look forward to helping with your will and other estate planning needs.
Call Arizona Estate Attorney Dave Weed at (480)467-4325 to discuss your case today.