Note: This is an updated version of a Special Needs article I wrote and first published in May of 2019 in Muslim Matters. You can find the original article here.
Families that have children with disabilities have a unique set of challenges and blessings. Disability (or special needs) is a broad term.
Many disabilities will prevent what we often think of as “normal.” It may hinder or prevent educational opportunities and employment. Many people with “special needs” can get educated, get married, and live long and productive lives. The problem for many parents of younger children with special needs is that they typically have no certainty about their children’s future needs. Even if the situation looks dire, it may not stay that way.
How do parents plan for a world where they may not be around to see how things will end up for their special needs children? What can they do to help their children in a way that does not violate Islamic Inheritance rules?
Certain types of disability, especially the loss of executive decision-making ability, could also happen well into adulthood. Such a loss can be a threat to a family’s wealth and be the cause of internal conflicts. Every adult with loved ones needs to think about this kind of thing.
The Special Needs Problem
The issues are not just that parents believe their Muslim special needs child will need more inheritance than other children. Muslim parents usually don’t think that. Some parents don’t want their special needs child to get any inheritance at all out of fear of their child losing public benefits.
Many, perhaps most special needs children, do not have any use for needs-based benefits (benefits for the poor). But many do, or many parents might figure that it is a distinct possibility. This article is a brief explanation of some of the options available for parents of Muslim special needs children. It won’t go over every opportunity, but rather those we often incorporate as part of any Islamic Estate Planning. I will also cover ABLE accounts.
“Stand-By” Special Needs
Example: Salma has three daughters and two sons. One of her children, Khalida, 3, has Down Syndrome. At this point, Salma knows raising Khalida is going to be an immense challenge for herself, her husband Rashid, and all the older siblings. What she does not know, however, is what specific care Khalida is going to need throughout her life or how her disability will continue to be relevant. She does not know a lot about Khalida’s future marriage prospects, her ability to be employed, and be independent, though, like any parent, she is nothing but optimistic about her child’s life.
In the event of her death, Salma wants to make sure her daughter gets her Islamic right to inheritance. However, if Khalida needs public benefits, Salma does not want her daughter disqualified because she has her own money.
Her solution is something called a “stand-by special needs trust.” This type of trust is done in conjunction with an Islamic Inheritance Plan and is typically part of a living trust, though it could also be a trust drafted into the last will. I will describe more about what a special needs trust is below. For Salma she is the Trustee of her trust. After she dies, she names her husband (or someone else) the successor Trustee. The Islamic Estate Planning Attorney will draft the document to prevent it from becoming an “available resource” used to determine eligibility for public benefits such as Supplemental Security Income (SSI), Medicaid (Medi-Cal in California), and other benefits that go with that.
Maybe there is no need
If it turns out that Salma passes away when Khalida is 5, and her assets are held in trust for her until she is 18. Her Trustee determines she does not need a special needs trust; she will get her inheritance precisely like everyone else based on their Islamic right. If she does need benefits, the Trustee will only make distributions to Khalida that would not harm her eligibility.
This way, there is no need to deny Khalida her inheritance because of her disability, and she is also making sure giving her daughter inheritance would not harm her daughter’s healthcare or other necessary support.
Certain types of disability, especially the loss of executive decision-making ability, could also happen well into adulthood. Such a disability can be a threat to a family’s wealth and be the cause of internal conflicts.
The Shape of Muslim Special Needs Trusts
A stand-alone Special needs trust, which is sometimes called a “supplemental needs trust,” the kind without the “stand-by” variation I described above, is a standard device for families that have children with special needs. A trust is a property ownership device. A Grantor gives the property to a trustee, who manages the property for the benefit of a beneficiary. In a revocable living trust, the Grantor, Trustee, and Beneficiary are typically the same person.
When the trust is irrevocable, the Grantor, Trustee, and Beneficiary may all be different people. In a special needs trust, the person with a disability is the beneficiary. Sometimes, the person with a disability is also the Grantor, the person who created the trust. Lawsuit settlements often live in such trusts.
In many, if not most cases, the goal may not be to protect the beneficiary’s ability to get public benefits at all. Many people with a disability don’t get government benefits. But they do want to protect the beneficiaries from having to manage the assets. Some people are just more susceptible to abuse.
The structure of the arrangement typically reflects the family’s dynamics and involvement of various family members.
Care for Zayna
Example: Zayna is a 24-year-old woman with limited ability to communicate, take care of her needs, and requires 24-hour care. Zayna has three healthy siblings, many aunts, uncles, and cousins. Her father, Elias, earns about $70,000 per year and is divorced. Zayna’s mother, Sameena, cannot contribute as she is on social security disability. However, Zayna’s adult brother and sisters, brothers-in-law, sister in law and several aunts, uncles want to help Zayna meet her needs Elyas creates a third-party special needs trust that would ensure Zayna has what she needs in the years to come.
Zayna receives need-based public benefits that are vital to her in living with her various disabilities and her struggle to gain increasing independence, knowledge, and dignity. So the trust needs to be set up and professionally administered to make sure that when Zayna gets any benefit from her trust, it does not end up disqualifying her ability to get any needs-based benefit.
Contributions to the special needs trust will not go against Islamic Inheritance rules unless made after the death of the donor.
If Zayna dies, her assets from the special needs trust will be distributed based on the Islamic rules of inheritance as it applies to her.
When disability planning is not about Public Benefits
Perhaps most Muslim families with special needs children do not use any needs-based public assistance. They are still concerned about special needs and planning for it.
Example: Khadija, 16, is on the autism spectrum. For those familiar with the autism spectrum, that could mean a lot of things. For her parents, Sarah and Yacoob, other than certain habits that are harmless and easy to get used to, it means Khadija is very trusting of people. Otherwise, she does well in school, and her parents don’t think she needs way more help than her siblings, and she has just as good a chance of leading a healthy and productive life as any 16-year-old girl.
The downside of being too trusting is that the outside world can exploit her. If she ends up getting an inheritance or gifts, she may lose it. The parents decide that when she gets her inheritance, it will be in a trust that would continue throughout her life. There will be a trustee who will make sure she has what she needs from her trust, but that nobody can exploit her.
In some ways, what Khadija’s parents Sarah and Yacoob, are doing is not so different from what parents might do if they have a child with a substance abuse problem. They want to give their child her rights, but they don’t want to allow for exploitation and abuse.
Considering your own Special Needs
Some of us are easy marks for scammers, yet you would be unlikely to know this unless you are either a close friend or family member, or a scammer yourself. While this often happens to the elderly, it can happen at just about any age. Everyone should consider developing an “incapacity plan” to preserve their wealth even if they lose their executive decision-making ability.
There is this process in state courts known as “conservatorship.” Indeed, entire courtrooms dedicate themselves to conservatorships and other mental health-related issues. It is a legal process that causes an individual to lose their financial or personal freedom because a court has essentially declared them not competent to handle their affairs. Conservatorships are a public process. They can cause a lot of pain, embarrassment, and internal family strife.
One of the benefits of a well-drafted living trust is to protect privacy and dignity during difficult times.
Example: Haris Investing in Cambodian Rice Farms
Haris, 63, was eating lunch at a diner. In the waiting area, he became fast friends with Mellissa, a thirty-something woman who was interested in talking about Haris’s grandchildren. The conversation then turned Melissa and her desire to start a business selling long-distance calling cards.
Haris was fascinated by this and thought it made good business sense. Haris gave Mellissa $20,000 as an investment and got Mellissa’s number. The next day, Mellissa’s number was disconnected.
Haris’s wife, Julie, became alarmed by this. It was out of character for her husband to just fork over $20,000
Three months later, Haris meets Mellissa at the diner again. She then convinces Haris to invest $50,000 in a Cambodian rice farm, which he does right away. His wife, Julie, was pretty upset.
How a living trust helps
As it happened, though, Haris, a few years before, created a living trust. It has a provision that includes incapacity planning. There are two essential parts to this: The first is a system to decide if someone has lost their executive decision-making ability. The second is to have a successor Trustee to look over the estate when the individual has lost this capacity. This question is about Haris’s fundamental freedom: his ability to spend his own money.
If you asked Haris, he would say nothing is wrong with him. He looks and sounds excellent. Tells the best dad jokes. He goes to the gym five times a week and can probably beat you at arm wrestling. Haris made some financial mistakes. Everyone makes mistakes.
Julie and his adult children Haroon, Kulsum, Abdullah, and Rasheeda, are not so sure it’s just a mistake. The living trust created a “disability panel.” This panel gets to vote privately, in if Haris should continue to act as Trustee of his own money. If they vote that he should not manage his own money, his wife does it for him.
The family has a way to decide an important and sensitive issue while maintaining Haris’ dignity, privacy, and wealth. Haris’s friends don’t know anything about long-distance calling cards or a Cambodian rice farm; they don’t know he lost his ability to act as Trustee of his trust. Indeed the rest of the world is oblivious to all of this.
ABLE to be Independent
One major problem with needs-based benefits for those with disabilities is that it forces people to be poor and dependent for no reason other than to justify giving people benefits. If you have a child, any child, not just one with disabilities, is that you want them not to be dependent if they can help it.
Many with special needs are productive members of society, in the myriad of ways we define that. Congress, recognizing this, passed the ABLE Act. It allows for gifts to separate accounts for those who qualify. ABLE accounts are tax-advantaged; they grow tax-free and can be withdrawn tax-free under certain circumstances. To get this kind of account, the account holder needs to qualify by age 26. To see how your child might be eligible, the Social Security Administration has a summary here.
These accounts are great for people who qualify even if there are no current needs-based benefits. For example, Khadija, in the example above (without the problem of being scammed), moves from having various needs to not having those needs from time to time.
Each state has an ABLE infrastructure. California, for example, has its ABLE program. You can also get information from various brokerages that can open accounts for you as well.
Of course, if you have a child with special needs, they will need to make sure inheritance for the account is arraigned under Islamic Rules, in the event, the child passes away.
Planning for everyone
Islamic inheritance is fard, and every Muslim should endeavor to incorporate it into their lives. As it happens, it is an obligation Muslims, at least those in the United States, routinely ignore or deal with inadequately. However, there is more to planning than just what shares go to whom after death. Every family needs to create a system. There may or may not be problems with children or even with yourself (other than death, which will happen). Still, you should do whatever you can to protect your family’s wealth and dignity while also fulfilling your obligations to both yourself and your family.
To schedule a 15-Minute call with Ahmed Shaikh to discuss Islamic Estate Planning or Special Needs Planning, click here.