The Importance of Homestead Planning When You Have a Minor Child and a Child With Special Needs
If you have a child with special needs receiving government benefits, you are likely already aware of the income and asset requirements involved in Medical and Supplemental Security Income (SSI). These requirements are why supplemental needs trusts are so helpful for parents with special needs children. When properly drafted, the trusts can help your child keep their government benefits while still getting the benefit of an inheritance from you after you pass away. Unfortunately, Florida has a law in place regarding your homestead that could mess the whole thing up if you are not careful.
In Florida, your homestead is not devisable if you have minor children. If you have a minor child when you pass away, it does not matter what your last will and testament or living trust says when it comes to homestead property. [1] Your homestead will be split between your spouse and your children (usually with the spouse taking a life estate) regardless of what your will or living trust says. If you have no spouse, then your children split up the home, as tenants in common.
This is a big problem if you have a minor child and a child with special needs. The special needs child is required by law to inherit an interest in the homestead from you. If the special needs child will live in the homestead, then the interest in the home will be excluded as resource for both Medicaid and SSI purposes. [2] However, if the special needs child will not live in the homestead, then the interest in the home will count as income in the month the interest is received and as an asset in the following months as long as it is still owned by the child. [3] Simply put, if your child will not live in the home, then the inherited property interest can be used to eliminate or reduce your child’s government benefits.
You might be thinking that is looks like a problem with no solution. After all, the entire point is that you are not allowed to devise the homestead! However, there is thankfully one planning option still on the table. Section 732.4017 of the Florida Statutes states that you can get around this rule with a transfer of property during your life. This opens up the use of an irrevocable trust. If you transfer your homestead to an irrevocable trust, the property is no longer bound by the homestead restrictions, meaning your trust can determine what happens to the property. In addition, your lawyer can draft the trust to include clever provisions, like one that gives the homestead back to you the moment you no longer have a minor child. You can also have the trust give you the ability to sell the home and invest the proceeds in a new home owned by the trust. And of course the trust document would clarify that you retain the right to live in the home.
Creating irrevocable trusts is a complex legal matter, and whether you should move your homestead into the trust brings up a number of issues to discuss with your lawyer. But if you have a minor child and a child with a special needs, then you should consider speaking with an estate planning attorney sooner than later. The last thing you want is to accidentally create additional problems for your special needs child when you pass away.
[1] Fla. Const. Art. X, sec. 4; Fla. Stat. 732.4015.
[2] ESS Manual 1640.0534; POMS SI 01130.100.B.
[3] ESS Manual 1640.0578; ESS Manual 1840.0101; POMS SI 00830.550.A.2; POMS SI 01140.100.B.