Life Series Part II: When Your Family Grows, Make Sure Everyone is Protected
Three years flew by for newlyweds Harry and Sally, and they soon were expecting their second child. When baby Chloe arrived, they were overjoyed that their first born Claire would now have a sister.
The coming of the second child ushered in typical changes in the household: a new bed for Claire so Chloe could take the crib, double diaper purchases, and more sleep-deprived nights. The larger household also prompted the couple to revisit their will to make sure Chloe was listed as a beneficiary and she was protected by the same guardian as Claire so the girls would remain together if Harry and Sally died.
But in coming months, Sally observed that Chloe wasn’t progressing at the same rate of motor development that Claire had shown in terms of rolling over by herself and proper balance in a sitting position. After chalking up some of the differences to individual maturity, Sally and Harry sought the help of a pediatrician to see if there was an underlying problem. Their fears were confirmed: Chloe’s lack of development was due to cerebral palsy.
The pediatrician explained that Chloe most probably had average to above average intelligence, would have a normal life expectancy and would be able to attend the same schools as the other kids in the neighborhood. However, it also was clear that she most likely would need special assistance for the remainder of her life, although it was too early to tell to what degree.
After they absorbed the initial shock, Harry and Sally counted their blessings that Chloe could enjoy a full life even with the disability, and they resolved to protect her by engaging in some estate planning with their attorney.
The couple learned that a special needs trust could be a powerful tool to assist a disabled individual as the trust allows money to be set aside without jeopardizing a disabled person’s present or future eligibility for government benefits. They learned there are are two basic types of special needs trusts in Michigan: a first party special needs trust, and a third party special needs trust.
A first party special needs trust is used for the disabled individual who has already received a sum of money, usually through a lawsuit settlement or an inheritance. A third party special needs trust is used when the trust will be funded with money from other people, such as parents or other family members. Harry and Sally set up the third party special needs trust so they could begin to fund Chloe’s care during their lifetime, without disqualifying her from certain government benefits.