My mother is in her early 60's. She has a portfolio of about $1.5 million split between 70% taxable, and 30% tax deferred/roth. She currently lives in a paid off house worth about 200k with my disabled sister. She is planning to retire in a few years and collect social security.
My sister is in her early 20's and disabled from a head injury when she was a baby. My sister's disability is both mental and physical, but she is able to handle most normal daily life tasks (e.g. cooking, cleaning, etc.). She doesn't need to live in a group home, and only requires minimal help to live independently. However, her disability makes it very difficult to keep a steady job reliably.
My sister collects SSDI benefits and medicare. She qualified because she was disabled very young and my late father had a social security work history. She will continue getting SSDI unless she gets a job, gets married (!), or if the law changes.
My mother would like to leave my sister an inheritance for her basic needs, but there are two problems:
- My sister will not be able to handle large amounts of money herself because of her disability. She would not know how to manage it, and is susceptible to scams. So, having the inheritance go to her directly is not an option. If the money is in her name, the risk of falling to scams is high.
- My mother's healthy now. But, in the case she needs nursing home care cost, the inheritance can be much reduced. For example, a 10 year nursing home stay would cost $1 million. We have no idea what my mother's future nursing home cost would be, if any.
An acquaintance of ours in insurance recommended whole life insurance. The idea is that the life insurance payout can be used to fund a special needs trust which then would cover my sister's basic needs. He said whole life insurance would allow my mother's retirement and medical costs to be covered, and also have a payout to my sister. Is that true? Seems too good to be true. I'm suspecting there are fees, other costs, and gotchas here that I'm not understanding.
Another option is to open a special needs trust immediately and fund it with a portion of my mother's portfolio. Then, the hypothetical nursing home cost for my mother can be paid in part by Medicaid. But in this option my mother would lose access to part of her money in an emergency, and plus trusts have very high taxes, so it seems wasteful to set it up now while my mother's healthy.
Any advice? I've spoken to a lawyer, but it wasn't very helpful. The lawyer said it is difficult to find a lawyer who understands elder law, special needs child inheritance, and investing tax issues.