Blog & Resources

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?”

From our “Ask a Question” mailbag: My adult daughter is a Special Needs Child who has always lived in Burlington County, New Jersey. She will likely always live here and always need care. She is currently eligible for and using Medicaid. When I die, I want to leave her some money, but I don’t want to disqualify her for Medicaid. What can I do?

From our “Ask a Question” mailbag: I want to form a Special Needs Trust for my daughter in my will, to be funded at my death. Will the money I put into the Special Needs Trust be subject to the Pennsylvania Inheritance Tax?

The Pennsylvania Inheritance Tax rate for transfers to children is 4.5%. This tax is payable whether you give the child money outright or if you place the money in a trust. A Special Needs Trust is an Irrevocable Trust that has the added language allowing the money to be available for a Special Needs Person’s care, but still allows that person to qualify for Medicaid.

From our “Ask a Question” mailbag: I am planning to set up a Special Needs Trust for my son and place a gift in the trust each year to help provide care for my son after my death. If he dies without the entire amount being used, whom can I name as the beneficiary?

If I have the facts correct, you are thinking about forming an Irrevocable Trust for your son during your lifetime (“inter vivos”) and then placing money into the trust every year to create a pool of funds to provide care for your son after your death. I also assume, in order to provide the maximum tax benefits, you will use Crummey Powers to make these transfers free of Federal Estate Tax, and you will not serve as trustee.

From our “Ask a Question” mailbag: My son is a special needs child and I have formed a Special Needs Trust in my will for his care. How do I fund this Trust without paying the Pennsylvania Inheritance Tax?

If you are unable to fund the trust until your death, then the only way to fund the trust without paying the 4.5% Pennsylvania Inheritance Tax on transfers to children (or to trusts for children) is to use life insurance.

Thanks to a skilled lobbying group, life insurance is exempt from the Pennsylvania Inheritance Tax.

From our “Ask a Question” mailbag: My son is a special needs child in Philadelphia on Medicaid, and I want to leave money at my death for his care. I have heard that Special Needs Trusts are becoming more liberal, is that true?

Special Needs Trusts have been available for many years, allowing parents to leave money for a child’s care that “supplements” but does not “supplant” what government programs provide. In this way, your child can qualify for Medicaid but the trustee can use the money you set aside for your son to provide him with the extra things that the government program does not provide.