Disability trust – protecting assets and avoiding social welfare recourse
A special needs trust is an essential tool for parents who want to ensure their child with a disability receives the best possible care after their death. Without such a testamentary provision, the inherited assets would be used to cover the costs of state benefits. This would mean the child's inheritance would be depleted without any improvement in their quality of life. A carefully drafted special needs trust protects the assets from being seized by social services and secures the financial future of the person with a disability.
Drafting a special needs trust requires specific expertise in inheritance law. Typically, the disabled child is named as the primary heir, while other individuals, often siblings, are designated as secondary heirs. An executor manages the estate and ensures that the proceeds benefit the disabled heir, for example, by funding additional therapies or fulfilling personal wishes. This complex legal instrument guarantees the child's participation in society and secures a higher quality of life that goes beyond state benefits.
We provide comprehensive advice on creating a special needs trust, ensuring clear and unambiguous language to avoid future interpretation problems. In cooperation with organizations like Lebenshilfe, we develop a solution optimally tailored to your child's needs. This way, you as parents can be confident that your assets will serve your child's well-being and that their future is as secure as possible. The child's right to self-determination is always our top priority.
What is a disabled person's will?
A disabled person's will is a special form of will in which at least one heir with a disability is included. This will prevents the family assets from falling to the social welfare organisation and instead remaining within the family. The main aim of a disabled person's will is therefore to ensure the financial well-being of the disabled child.
What is the situation under inheritance law without a will for the disabled?
A relative with a disability may experience certain disadvantages as a testator if no specific testamentary arrangements have been made. If the parents of the disabled child have not drawn up an effective will or inheritance contract, statutory succession applies.
If, in the event of a death without a will, there are several legal heirs, including a disabled relative with a legal right to inheritance, they form a Community of heirs. These heirs must jointly decide how the estate will be divided – a task in which a disabled or dependent relative may have difficulty asserting themselves within this group.
It is important to note that the disability often results in high costs for care or institutionalisation. As these expenses are not normally covered by pensions or similar income, the state will cover the costs incurred. However, the principle of subordination applies when granting social benefits. This means that recipients of social benefits must first use their own assets to cover the costs incurred. If a person with a disability inherits money or other assets, they must use them. In other words, the inherited assets would go directly to the state, which would penalise the heir.
Furthermore, it should be noted that disinheriting a disabled child is not advisable. Disinheritance would mean that the child would still be entitled to a compulsory share of the inheritance. The social welfare agency can, while the child is receiving benefits, transfer this claim to itself and the Mandatory portion offset against the payments already made.
Is a disabled person's will legally permissible?
In the case of deliberate circumvention of potential claims by the welfare state, the question has always arisen as to whether such behaviour is contrary to accepted principles of morality within the meaning of Section 138 of the German Civil Code (BGB) and whether any orders are therefore null and void.
In several judgements, the courts have ruled that the preparation or the instructions of a disabled person's will are not immoral (BGH, decision of 24.7.2019 - XII ZB 560/18; OLG Cologne, judgement of 9.12.2009 - 2 U 46/09). Even if the family has considerable assets and the social welfare provider misses out on large sums as a result, immorality must be rejected due to the freedom to make a will, which outweighs the protection of the welfare state (OLG Hamm, judgement of 27.10.2016 - 10 U 13/16).
How is a disabled person's will structured?
In order to avoid access to the inheritance by the social welfare provider as the disabled person's creditor, means of organisation must be used to protect the inheritance from enforcement by the creditors.
Pre- and post-inheritance and the execution of wills are possible instruments for this purpose. Section 2115 BGB, Section 773 ZPO and 83 (2) InsO guarantee the protection of the entire estate, which is subject to the obligation of the subsequent heirs and protected against realisation by the creditors of the estate. This means that although estate assets can be seized or confiscated, the cancellation of these measures is conditional on the occurrence of succession. During the period of succession, however, any acts of realisation are not permitted.
In a classic disabled person's will, the relative in need of care is appointed as the prior heir and is given a share of the estate that is slightly higher than the compulsory portion. At the same time, one or more persons are appointed as subsequent heirs, to whom the inheritance is transferred at a time determined by the testator, at the latest when the previous heir dies.
The testator must also order a permanent execution of the will for the lifetime of the disabled relative. The executor of the will must be given clear instructions in the will as to how the income from the estate is to be used to improve living conditions.
In addition to the above Inheritance release There is a further option for drafting the will, namely the Legacy solution. The disabled child of the deceased is appointed as an advance legatee, while other descendants are named as subsequent legatees. Typically, the legacy consists of a fraction of the total value of the estate, known as a quota legacy, which corresponds at least to the compulsory portion of the disabled heir. At the same time, an execution of the will is ordered for the administration of the bequeathed object, which extends beyond the time of the occurrence of the subsequent legacy.
The purpose of this instruction is to protect the bequeathed object from being seized by the creditors of the legatee in accordance with Section 2214 and at the same time to prevent the social welfare provider from having access to it. In the context of a will for disabled persons, the executor of the will is given binding instructions pursuant to Section 2216 para. 2 to grant certain uses of the bequeathed object to the legatee and, if necessary, to make parts of the bequest available.
What are the advantages and disadvantages of the legacy solution?
A not inconsiderable disadvantage of the inheritance is that the disabled child becomes part of the community of heirs. However, the aim of this community is to dissolve itself, as several heirs inherit the assets together and must decide how to distribute the assets based on their respective inheritance shares.
In the case of a disabled person's will, this distribution is often particularly complex, especially if the disabled child is under legal care. However, if the child is only named as a legatee, he or she only receives a claim under the law of obligations. The surviving spouse or siblings can then fulfil this claim more easily compared to the settlement of a community of heirs.
The disadvantages of the bequest solution lie in particular in the uncertainties often attributed to it, as it is not sufficiently backed up by case law.
Conclusion on the special needs trust
A special needs trust is a crucial tool for parents of children with disabilities, protecting their assets while simultaneously safeguarding their child's eligibility for state benefits. Without a carefully planned will, the inheritance of the disabled child would be used to finance social services. A thoughtful testamentary solution ensures that the assets remain within the family and benefit the child.
The right structure – whether through a prior and subsequent inheritance or a legacy solution – makes it possible to promote the participation of disabled people in social life and to sustainably improve their quality of life. The child's right to a self-determined life is always paramount. Clear language in the will is crucial to avoid later problems of interpretation and to ensure legal certainty.
It is particularly reassuring for parents to know that a legally valid special needs trust ensures both the protection of their assets and the long-term care of their child. In cooperation with experienced advisors and organizations such as Lebenshilfe, an individualized solution can be developed that meets the specific needs of the person concerned and is sustainable in the long run.