Disinheritance is an outdated and incorrect approach to securing the future of persons challenged by disabilities.
I continue to be amazed (and dismayed) at recent reports by prospective Special Needs Planning clients that other professional advisors have recommended disinheriting a beneficiary to allow that person to maintain his eligibility for means-tested government benefits (such as Medicaid and Supplemental Security Income). Estate planners (and other allied professionals) who recommend the disinheritance of a beneficiary with a disabling condition often do so because they are unfamiliar with Special Needs Trust planning. Although they have a vague understanding that it is inadvisable for a variety of reasons to make an outright gift or bequest to a person with a disability, many traditional estate planning professionals are reluctant to develop new expertise in this complex emerging area of the law.
Rather than developing a proficiency in this area, or aligning themselves with co-counsel who can provide the necessary expertise, they recommend that the beneficiary with special needs be disinherited and provided for informally by other family members, typically adult siblings. Estate planning attorneys are increasingly held liable for legal malpractice for their lack of proper advice on how best to address the special needs of a beneficiary with a disability.
Do not leave the share of the person with special needs to another family member on an informal basis.
Able-bodied family members may claim that they are willing and able to manage on an informal basis the funds designated for the beneficiary with special needs. However, such a precatory arrangement cannot typically be legally enforced. The donee of the funds could maliciously withhold the benefits of the designated funds from the intended beneficiary, leaving the beneficiary with no legal recourse (and no funds to pursue any remedies).
Even well-intentioned family members may ultimately fail to manage designated funds for the benefit of the intended beneficiary with special needs. If the donee of the designated funds commingles the assets with his own, and thereafter (i) files for bankruptcy, (ii) becomes party to a divorce proceeding and a subsequent equitable division of property, or (iii) fails to pay his tax liabilities and becomes subject to a tax lien, the funds designated informally for the beneficiary with special needs could be dissipated entirely. These are but a few of the most common creditor traps that defeat the intention of clients trying to secure the future of beneficiaries with special needs.
A similar result could ensue if the donee of the funds set aside informally for the beneficiary with special needs predeceases him and (i) dies intestate with heirs-at-law that include persons other than the intended beneficiary, or (ii) dies testate but fails to make proper arrangements in the Will for the ongoing management of the funds for the benefit of the intended beneficiary. Since an estimated 70% of the population dies intestate, this is another very common flaw in a client’s plans to provide for beneficiaries with special needs. Although members of Lawyers with Purpose know that the Special Needs Trust is the cornerstone of securing the future of beneficiaries with disabling conditions, many allied professionals still render the outdated and incorrect advice described above.
Even in this Internet Era, where there is much accurate information on Special Needs Trust planning readily available to professionals and consumers alike, old (and incorrect) practices die hard! Feel free to forward this blog anonymously to someone you know who might still be dispensing this antiquated counsel. (That person – and his malpractice insurer – will be most appreciative!)
Kristen M. Lewis, Esq., Member of the Special Needs Alliance and Fellow of the American Academy of Trust and Estate Counsel.
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