Estate planning for disabled child has a few twists

Special-needs lawyer Adrienne Arkontaky urges families with disabled children to make an estate plan as soon as possible — and she speaks from personal experience. Her daughter, Jordan, now 15, was born with cerebral palsy.

But, Arkontaky cautions, some financial arrangements may actually put a special-needs child at risk. For example, in order to qualify for Medicaid and other benefit programs, disabled children may not have more than $2,000 in their own name. Parents and well-meaning relatives who give a disabled child money — either now or in their will — could make the child ineligible for some benefits, and he or she would need to spend down the money and reapply.

A better solution is a special-needs trust, which acts as a receptacle to accept money earmarked for the child and may be used to pay for the amenities that government programs don't provide.

"The trust can see that children have the opportunity to travel to visit relatives, celebrate birthdays and holidays, and enjoy some measure of entertainment," says Gordon Homes, a certified financial planner with MetLife's division of estate planning for special kids.

Brittany Troncone was 10 years old when her father, Matthew, arranged to meet with Arkontaky to set up a trust for her. Matthew designated a guardian for Brittany in his will and named the special-needs trust as the beneficiary of his life-insurance policies and retirement plans. He instructed relatives to do the same and wrote a letter of intent explaining the extracurricular activities, such as swimming and horseback riding, that he'd like the trust to pay for.

Arkontaky generally recommends naming co-trustees — a family member or friend plus a professional trustee, such as a bank or a lawyer, who can choose the investments and manage the taxes. It's important to pick trustees who will be able to manage the trust for decades (and keep that time frame in mind when designating a guardian, too).

Many families also boost their life-insurance coverage, especially if they want to leave money to other children as well. Because the child could be dependent for more than 20 or 30 years, this is one instance in which a cash-value policy trumps term life insurance. You'll need to buy coverage for both parents, including the primary caregiver. But you can save money, says Homes, by putting most of the money in a second-to-die policy, whose proceeds will be paid directly into the special-needs trust after both parents die. He recommends a universal-life policy that maximizes the death benefit and minimizes the cash value.