How the SECURE Act Will Impact Special Needs Trusts

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Typically, a special needs trust (SNT) provides additional financial support to individuals of any age with disabilities while maintaining their eligibility for government benefits. Under the SSA expenditure rules, an SNT can provide additional monies to enhance the beneficiary’s lifestyle while maintaining Medicaid, Social Security Disability Insurance (SSDI), or Supplemental Security Income (SSI). The trust can receive funding from family members or other sources, such as retirement accounts. Recent changes to federal law have impacted various aspects of special needs trust planning.

The SECURE Act and SECURE Act 2.0

The first Setting Every Community Up for Retirement Enhancement Act (SECURE Act) primarily deals with retirement accounts but also has implications for special needs trusts.

One key provision of the SECURE Act affecting special needs trusts is the age at which individuals must start taking required minimum distributions (RMDs) from their retirement accounts. Before the SECURE Act, the requirement was to start taking RMDs from traditional IRAs and 401(k) plans at age 70½. The most recent SECURE Act 2.0 law states individuals must begin taking RMDs at age 73, effective 2023, and at age 75 in 2033.

Effective in 2023, the SECURE Act requires that distributions following an IRA owner’s death be complete within ten years unless there is an “eligible designated beneficiary.” Beneficiaries of an SNT, created in part for the benefit of a person with a disability or chronic illness, can be treated as eligible designated beneficiaries. This means they are exempt from the ten-year limitation. Charitable organizations under the first SECURE Act don’t qualify as designated beneficiaries.

SECURE 2.0 clarifies that an SNT designating a charitable organization as the trust’s remainder beneficiary doesn’t disqualify the special needs trust from having eligible designated beneficiaries.

How Does the SECURE Act Affect a Special Needs Trust

The change in the RMD age can affect special needs trusts in a few ways. First, it may provide more time for individuals to accumulate assets in their retirement accounts, which can then be directed into the special needs trust upon their passing. Second, it may change the timing and amount of distributions from retirement accounts, which can impact the overall financial planning and management of the SNT.

Existing special needs trusts are not grandfathered from the RMD age increase. The SECURE Act age change applies to all individuals with retirement accounts, regardless of a special needs trust. However, the impact of the RMD age increase on an existing SNT will depend on the trust’s specific terms and the beneficiary’s age. For example, if the beneficiary is over 73 and already taking RMDs, the RMD age change may not affect the SNT.

If the beneficiary is younger than 73, and the trust is structured to receive RMDs from the beneficiary’s retirement accounts, the change in the RMD age provides more time for the retirement accounts to grow tax-deferred and allows for more assets to be directed into the trust upon the beneficiary’s passing.

It’s crucial to review the specific terms of an existing special needs trust with special needs attorney to assess the impact of the SECURE Act on the trust.

Key Considerations for a Special Needs Trust

When creating or updating a special needs trust as a result of the SECURE Act, there are a few key considerations:

·       Updating or Implementing Current SNT Language

The SECURE Act changed how retirement accounts are inherited and distributed, affecting how those assets are directed into a special needs trust. It may be necessary to update the language in an existing SNT to ensure it reflects the new rules and requirements for retirement accounts.

·       Reviewing the Beneficiary’s Age

With the increase in the age of RMDs, it’s important to review or structure the SNT to receive RMDs at the appropriate time. If an existing special needs trust has a beneficiary younger than 73, the trust must be amended to reflect the new RMD age.

·       Adjusting Trust Distribution Strategies

With the RMD age increase, there may be more time for retirement accounts to grow tax-deferred, which can impact the overall distribution strategy for the trust. Adjusting an existing distribution strategy may be necessary to ensure that the SNT still meets the beneficiary’s needs and goals.

Working with special needs attorneys who are knowledgeable about Special Needs Trusts and the SECURE Act is crucial to comply with new standards when creating a trust or making changes to an existing one.

Special Needs Trusts and Attorney Types

Special needs trusts are a highly specialized area of law, and working with an experienced in estate planning, elder law, and special needs is critical.

An attorney focusing on SNTs can help you understand the legal requirements for setting up and administering a trust under current law, including the different types of trusts available, the rules and regulations to maintain government benefits such as Medicaid, SSDI, or SSI, and the tax implications of an SNT.

Your attorney should also be compassionate, as discussions of your situation and concerns for beneficiaries can be delicate topics. Creating a special needs trust requires clear and understandable legal advice and guidance for maximum value to the beneficiary.

This article offers a summary of aspects of estate planning and elder law. It is not legal advice and does not create an attorney-client relationship. For legal advice, contact our Ruston, LA office by calling us at (318) 255-1760.

Providing Support for Adults with Disabilities

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The number of Americans with disabilities is growing, and so is providing support for adults with disabilities. Parents planning for the future well-being of their adult children is a responsive, ongoing process. A Journal of the American Medical Association reports the life expectancy of adults with Down Syndrome has increased from 25 in 1983 to 60 in 2020. The same study cites that those with cerebral palsy, the most common motor disability of US children, may often live into their 50s.

The ever-increasing life expectancies of adults with disabilities mean that comprehensive special needs planning requires short and long-term planning to lay the foundation of five key elements to ensure a successful support system:

  1. Vision
  2. Living Accommodation
  3. Government Resources
  4. Private Financial Resources
  5. Legal Needs

Vision

How do you envision your adult child’s life after you’re gone? As you define and refine your vision to the extent possible, you should involve your child in the process. It’s important to focus on the strengths and abilities of the adult child, not just the challenges of their disabilities. This involvement helps promote self-esteem and independence to the highest degree possible.

Letter of Intent (LOI)

Although this letter is not a legal document, it provides key instructions and information about your child’s routines, preferences, and wishes. The LOI can and should be extremely detailed, including identifying caregivers, medical information and providers, and other individuals in their lives who may be a good fit to care for or support your child. Reviewing and updating the letter at least every two years or when significant changes occur is good practice.

Supported Decision-Making

If your adult child is capable and in charge of decision-making, selecting a team of trusted advisors is still important. This team may include family members, professionals, friends, and community services who all participate in your adult child’s success. The National Resource Center for Supported Decision-Making has information about the right to make choices by state.

Living Accommodation

Where your adult child will live depends on several factors, including their disability type and available financial resources. If your child currently lives in your home, don’t wait until you die to have them move into and experience a new home. Moving can be a tough experience while you are alive but catastrophic when you are gone.

Housing Options

  • Your home – It’s great if you can leave your residence to your child in a special needs trust as long as it also contains enough money to cover ongoing property maintenance, taxes, and other costs.
  • Another home – You might purchase a townhouse or condo for your child and hold the property in a special needs trust.
  • Section 8 vouchers – This federal program provides housing in the community to low-income people; however, wait lists can be long.
  • Group homes – Adults with disabilities can use private money or Medicaid payments to live in a group home. In some cases, this living situation also has counselors and other staff that can help residents live as independently as possible.
  • If assisted living is a requirement, a special needs attorney can help identify options.

Government Resources

Creating a schedule of the individuals, services, and organizations that have become your adult child’s support system. And how they are financed makes your vision for your child a reality. You can be creative, and pair speech, physical, and occupational therapists, as your child’s abilities develop more fully. Much of your child’s resources throughout adult life will depend on the continuation of government programs that provide the support and services they need.

Government Assistance Programs

It’s wise to involve a special needs attorney to explain how to properly manage these resources. In order to preserve your child’s access to government programs.

A person with developmental disabilities can often access the Supplemental Security Income (SSI) program. Which guarantees a minimum income to qualifying low-income recipients. A representative payee can assist those individuals who are unable to manage their finances.

To be eligible for Medicaid benefits, the recipient must have a limited income and assets (assets not protected by ABLE or Special Needs Trust accounts) and covers a broad range of health care costs.

Maintaining eligibility standards and managing these benefits may be more than your adult child with disabilities can manage. Identifying a reliable candidate and creating the structure that legally permits them to facilitate these programs is crucial to your child’s future well-being.

Many US military personnel have experienced serious physical and mental health problems since serving in Iraq and Afghanistan. A large percentage of these service members are unmarried and under thirty. For parents of veterans with disabilities, look into the Veterans Disability Compensation program.

There is also a benefits program for veterans with permanent disabilities, which is needs-based. The Veterans Disability Pension has eligibility requirements based on your adult child’s assets and income. A veterans specialist or disability attorney can create a special needs trust to ensure your adult child can qualify.

Many other government programs are available to help your adult child with disabilities have a successful future. A special needs attorney can explain more about discrimination protections outlined in the Americans with Disabilities Act (ADA), the Affordable Care Act (ACA), the Ticket to Work Program, and more.

Private Financial Resources

Parents of children with special needs have additional planning requirements to ensure the safety and success of their child’s life when they are no longer alive to oversee that child’s well-being. Creating a realistic strategy is key to success. Begin with creating a general framework with a special needs lawyer and then fill in the financial details. Financial resources may include life insurance policies and other investment strategies.such as funding an Achieving a Better Life Experience (ABLE) account. The cash flow these accounts create will allow your adult child to continue living a life of safety, purpose, and impact after you are gone.

Additionally, your lawyer can create a special needs trust appropriate for your family’s financial situation and child’s needs. This trust type provides additional monies to your adult child without them losing eligibility for government benefits. There are various special needs trust types, including:

  • Third-Party Special or Supplemental Needs Trust (SNT)
  • First-Party Special Needs Trust or Self-Settled SNT
  • Pooled Special Needs Trusts

Legal Needs

There are several legal tools that parents can use to create a lifelong plan for their adult child with disabilities, including:

  • Guardianship
  • Special Needs Trusts
  • Advance Health Care Directive
  • Durable Power of Attorney

It’s important to consult with an attorney who has experience with special needs and disability law. In order to determine the best option for your adult child’s future specific needs and situation.

Conclusion

Planning for your child with special needs is customized to your family circumstances and your child’s unique needs. Legal guidance is critical because missteps can lead to ineligibility for crucial government benefits programs. To provide for your child’s future success after you are gone, speak to a special needs or disability attorney and begin your proactive planning.

This article offers a summary of aspects of estate planning and elder law. It is not legal advice and does not create an attorney-client relationship. For legal advice, contact our Ruston, LA office by calling us at (318) 255-1760.

 

Common Mistakes in Special Needs Planning

Common Mistakes in Special Needs Planning

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Statistics show that 26% of American adults live with some form of disability–  more than you might think. However, federal and state benefits, such as Medicaid and Supplemental Security Income (SSI), are available for persons with special needs. These benefits are “needs-based,” which means the amount of assets and income the beneficiary can have are very limited.

When planning for a loved one with special needs, you must ensure they don’t receive money or other assets thatcould cause disqualification from their government benefits. Here are some common mistakes in special needs planning.

Gifts

Gifts of money or assets from well-intentioned family members or friends can disqualify a loved one with special needs from government benefits. This would cauwe their countable assets to exceed the acceptable limit. After getting disqualified, it can be difficult to requalify for benefits. It’s better to have gifts go to a special needs trust or a similar financial planning tool set up for the benefit of the recipient.

Disinherit

Some parents believe if they disinherit their child with special needs, that child’s siblings will help take care of them for the remainder of their life. This plan puts a lot of responsibility on the other siblings and can fall apart for many reasons. If the inheritance is in the siblings’ names, it could be lost due to divorce, lawsuits, bankruptcy, or irresponsible spending. Additionally, Louisiana’s forced heirship laws can foil such a plan. Forced heirship requires that a special needs child (or grandchild in some circumstances) must received a certain amount of a decedent’s estate after he or she dies.

Lack of a Trust

Failing to create a special needs trust for your loved one with special needs is a common mistake.  Government benefits are used for basic living expenses, such as housing, food, and medical care. Therefore, a person with special needs usually won’t have enough money for other expenses, such as travel and hobbies. Creating a special needs trust can make funds available for expenses that government benefits don’t cover.

Crowdfunding

Similar to gift-giving from family members and friends, donations from a crowdfunding campaign can negatively affect your loved one with special needs. By pushing their countable assets over the acceptable limit. If you want to create a crowdfunding campaign to benefit your loved one with special needs, find a way to keep the funds out of your loved one’s name. Again, a special needs trust could be a good option.

Consult an Attorney

The best way to avoid making mistakes that could cause your loved one with special needs to lose their government benefits is to consult with an attorney experienced in elder law and estate planning. They will be able to help you find the best solution for your particular situation.

Our law firm is dedicated to informing you of issues affecting persons with special needs. We help you and your loved ones plan for the best possible future. Contact us today to schedule an appointment.

This article offers a summary of aspects of estate planning and elder law. It is not legal advice and does not create an attorney-client relationship. For legal advice, contact our Ruston, LA office by calling us at (318) 255-1760.

Special Needs Trust Funding

Special Needs Trust Funding

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Funding a special needs trust (SNT) properly ensures your assets get exactly where they need to be. The trustee can then distribute these assets to benefit your disabled loved one.

Before any special needs trust funding can happen, you must choose the type of trust that best suits the situation for your special needs child or adult. Retaining a special needs attorney is critical to carefully select a first- or third-party SNT based on maximizing available government program benefits and assessing future tax implications.

Establishing the Trust as a Legal Entity

In some instances, the first step to funding a special needs trust is establishing a taxpayer ID number from the IRS. Once set up, the trust is irrevocable. An exception to the EIN requirement is establishing a living trust and will, which becomes irrevocable upon the trust creator’s death requiring an EIN later. This nine-digit Employer Identification Number (EIN) acts like a social security number for the trust so that the IRS can identify the trust as a separate legal entity.

Funding the Trust

Funding options for a special needs trust are unique to each family situation. Money from a personal injury settlement can fund a first-party SNT trust (if you are under 65 years old), and any inheritance the beneficiary receives directly. However, upon the death of the disabled individual, these trusts have pay-back provisions for Medicaid.

A third-party special needs trust is written either during the creator’s lifetime (inter vivos) or as a testamentary trust accessed upon the creator’s death. An inter vivos trust allows other family members or friends to contribute to the trust before the trust creator’s death. Typically, third-party SNT funding includes inheritances, family savings, and other financial gifts, which can be invested in stocks or bonds for growth and to hedge against inflation. The trust can be self-sustaining with the proper investment decisions.

A family creating a special needs third-party trust may also consider funding through:

Insurance

  • Survivorship or second-to-die life insurance policies can be a good funding choice as they tend to have less expensive premiums; however, they will not pay out until the second member of a couple dies. Domestic partners may also purchase coverage as you do not have to be legally married to buy a policy. Problems may occur if the remaining spouse or partner does not have enough cash flow to cover the family’s ongoing expenses from other sources. A survivorship insurance policy requires a close look at your retirement planning and other income sources, as well as funding a special needs trust.
  • Term life insurance is often another relatively inexpensive funding choice for a special needs trust. Term life insurance policies guarantee payouts during a specified period and typically cost less. You can renew these policies upon their expiration date, assuming you are not subject to significant health changes. Renewing term life insurance often means higher premiums as you age and if you encounter notable health changes.
  • Whole life insurance will cover your entire life span. The premiums you pay collect in an investment account that the insurance company invests to grow value. These premium costs are fixed.
  • Variable life insurance will also provide lifelong coverage; however, the policy cash value will fluctuate along with financial markets.

Real Estate

For a person with special needs, a family home may represent stability and routine, and living in that residence may be an important goal for continuity. Yet leaving the house in the name of your special needs loved one is often a big mistake as it affects means-tested government benefits. However, real estate in a third-party SNT can avert the Medicaid lien of a first-party trust upon their death and transfer to other beneficiaries instead.

If the special needs individual needs to move and sell the home, the sale proceeds will remain in the trust. If moving is not contingent upon selling the home, the SNT trustee can convert the property to a rental, producing income for the trust. In either case, it is important to have adequate trust funds to maintain a family home in the SNT.

Retirement Plans

Funding an SNT through retirement plans is complex. Without careful financial management, all the funds distributed to the trust’s beneficiary may be taxed during the transfer year. This situation may result in eligibility disqualification for government benefits and unnecessarily high taxes.

An exception is designating military survivor benefits to a special needs trust recently adopted through the Disabled Military Child Protection Act federal legislation. But, if your special needs trust receives funding from non-military retirement accounts, the SNT format should be an “accumulation trust,” which spaces out required minimum distributions. Additionally, any remainder beneficiaries (those entitled to remaining funds upon the death of the primary beneficiary) should ideally be younger than the primary beneficiary to avoid unintended distribution requirements.

Retirement accounts can negatively affect the intent of a special needs trust. Instead, many special needs attorneys or disability lawyers encourage draw downs on the retirement account to purchase life insurance for the SNT or leave their retirement funds to other heirs.

Getting Professional Advice

All funding options for a special needs trust require complicated decision-making. Before creating and funding an SNT, families should consult an attorney specializing in financial planning and special needs law. Understanding tax regulations, insurance options, and benefits laws are crucial to creating a trust that addresses the family’s goals for the future security of their loved one. Proactive planning with a special needs attorney can protect your loved one’s government benefits and provide additional assets through a properly funded special needs trust. For assistance, please contact our Ruston, LA office by calling us at (318) 255-1760.

There is No Need to Disinherit Your Special Needs Child for Benefit Protection

Special Needs Child for Benefit Protection

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The futures of children with special needs are at risk because of the unique challenges and opportunities they face. There is no need to disinherit your special needs child for benefit protection. Appropriate medical, educational, recreational, and employment opportunities for your special needs child can result in a lifetime of pursuing public and private programs and services. Too often, the parents or persons responsible for financial and medical management of the special needs child receive misguided advice to disinherit them.

Who Qualifies as Special Needs?

The term “special needs” refers to the clinical and functional development of individuals requiring assistance for medical, psychological, or mental disabilities. For government benefits programs, special needs are a part of the larger category of disability. Special needs diagnoses are considered disabilities, but not all disabilities are special needs. Maintaining your child’s qualification for government disability benefits can be done through estate planning strategies. You do not necessarily need to disinherit your special needs child to preserve them.

How Does Inheritance Affect Government Benefits?

Directing assets to the child can result in their inheritable assets and income levels exceeding allowable levels, making them ineligible for public assistance. This problem can make parents decide not to provide the same level of inheritance as they would for other children. It is a painful decision to make. However, There is no need to disinherit your special needs child for benefit protection. Other methods exist to provide inheritance and protect government benefits with careful planning.

Estate Planning Solutions

The proper creation of a special needs or supplemental needs trust can help the child without jeopardizing eligibility requirements for government disability benefits. Public benefits have specific spending designations that cover shelter, food, clothing, and transportation. The monies from a special needs trust are designed to improve the child’s overall quality of life but are spendable only in certain categories.

The trust money can’t be used for housing, food expenditures, or other financial needs that government benefits meet. Instead, it is used to pay caretakers, out-of-pocket medical expenses, some transportation, educational expenses, recreation, vacations, and more. There is no need to disinherit your special needs child for benefit protection. A disability planning attorney can design your special needs trust to comply with the specific rules of the beneficiary’s public benefits program.

How Does a Trust Work?

Determining how to fund a special needs trust depends on your financial situation. Life insurance policies are a popular choice, as are income-producing assets that increase the trust’s future bottom line. How much to fund the trust also depends on your financial situation. A broad list of your special needs child’s expenses to consider include:

  • Housing
  • Medical care
  • Care assistance
  • Special equipment
  • Education and or employment costs
  • Personal needs
  • Future asset replacement costs like a car, furnishings, etc.

Some of these broader expense categories will fall to government benefits spending and others to the special needs trust. To avoid providing monies for categories that can affect eligibility for government benefits like SSI and Medicaid, do not pay for the following expenses with special needs trust funds:

  • Rent or mortgage payments
  • Essential food and groceries (the occasional restaurant outing is permissible)
  • Direct gifts of cash to the beneficiary for any purpose
  • Property taxes
  • Condo or homeowner association dues
  • Mortgage required homeowner’s insurance
  • Utilities and other hook-up or connection charges

Who Owns or Controls the Trust

Often, the parents choose to be the trustee(s) of the special needs trust until they become incapacitated or pass away. An alternate or backup trustee with expertise in managing trusts who can pay bills and taxes, keep accounts, and make sound investments is crucial to designate. The parents may also choose to designate a professional trustee for the same purpose.

Sometimes, to alleviate any discomfort with an outsider managing their child’s needs, the parents opt for a professional and family member as co-trustees. A trustee can also hire a trust protector who is given the legal power to review accounts and fire and hire trustees, or a trust advisor who will inform the trustee of the beneficiary’s needs. A special needs planning lawyer can help you to assess if these additional oversights are necessary.

Parents and other decision-making individuals using a special needs trust have the means to treat their special needs child similarly to other children. While different types of trusts are unique to protect government disability benefits, the child will be able to inherit as a trust beneficiary. Once the special needs trust has served its purpose, any remaining assets can be divided among surviving family members. Even fund the organizations instrumental in the special needs child’s care.

If you prefer, you can designate a charity to receive the remaining principle as a form of legacy gift, perpetuating your child’s memory. A disability or estate planning attorney knows how to create a special trust to meet your child’s needs and financial goals while protecting your child’s government benefits. There is no need to disinherit your special needs child for benefit protection. For assistance, please contact our Ruston, LA office by calling us at (318) 255-1760.

Lifetime Planning for Special Needs Children

Lifetime Planning for Special Needs Children

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Lifetime Planning for Special Needs Children

Special needs children present a unique challenge in regards to estate planning. Optimizing your estate to use, enhance, and enrich assets for your special needs child while maintaining their enrollment in public benefits programs requires careful planning. An estate planning attorney can prepare a special needs trust and help in lifetime planning for special needs children. Accomplish these and other goals you have for your child.

A special needs trust can meet strict financial eligibility rules for means-tested assistance programs because the assets held in the trust are not directly available to the child. A trustee provides benefits to the child via the trust. Parents select this trustee with great care because they will act as the child’s money manager, ensuring proper financial supervision after the parents die. A letter of intent is also a powerful tool to guide the trustee to make decisions that best benefit the child’s unique needs.

Selecting Options

In most cases, your special needs child will benefit by selecting a non-family member who is independent to act as your special needs trustee. The range of options includes:

  • A parent, sibling, or another relative, which can be risky,
  • An estate planning attorney,
  • A financial institution or a trust company,
  • A non-profit organization, particularly one with special needs experience, or
  • Co-trustees, such as a trust company, acting in conjunction with a family member.

Each option has advantages and disadvantages that require close counsel with your estate planning attorney or financial advisor before selecting your trustee.

The creation of your special needs trust can happen while you are living or at the time of your death. A last will and testament can incorporate creating the trust, known as a testamentary trust. Parents often set up the trust while alive, known as a living trust (inter vivos trust). The living trust has advantages, including the avoidance of probate, the permission for other family members to make trust contributions (usually grandparents), and the opportunity for a co-trustee to experience what it is like to administer the trust.

Whether or not your trust is revocable or irrevocable affects tax consequences. Generally, you’ll want to choose a revocable trust if the goal is to maintain maximum control over the trust and income tax considerations aren’t a concern. Establish an irrevocable trust when there are concerns regarding income tax consequences, particularly if the trust funds exceed one million dollars. In this instance, both federal estate and gift taxes may apply to the trust.

Taking Legal Action is Crucial

While there is much to consider and decide, the crucial step to providing for your special needs child is to make it legal. Verbally telling your family how to care for your child is insufficient. In the absence of a will, testamentary trust, or living trust, the state in which you live will determine the outcomes of your estate’s distribution. This situation is not a viable option for a special needs child or any of your children.

Receiving proper legal guidance to implement your estate plan using appropriate trusts is crucial to maintaining a healthy lifestyle for your special needs child. Do not attempt to craft these legal documents on your own, use existing forms, or copy some internet template. Each special needs child requires careful considerations that are unique to them and the challenges they face moving forward. With so much at stake, a qualified estate planning attorney with expertise in special needs planning will best suit your wishes and the child’s needs. Protecting public benefits such as Supplemental Security Income (SSI) and Medicaid and establishing a special needs trust through your estate planning can best achieve these goals. If you have questions or would like to discuss your personal situation, please contact our Ruston, LA office by calling us at (318) 255-1760.

 

Understanding Special Needs Planning

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Enabling the Disabled

We help families look at planning for their disabled loved ones to live their best lives. Family money can be carefully managed to fit the disability-benefit rules and still provide additional perks for the disabled person to enjoy. And, though the rules can be strict, disabled people are still permitted autonomy to own some money for their personal use and yet retain their valuable benefits.

For the disabled who have formerly worked

People in this category have contributed Social Security deductions while employed, but they can’t work now due to disability. These people can get benefits of around $1,000.00 monthly, and Medicare coverage, under the Social Security Disability Income program (SSDI). This program permits the disabled to receive income from any source and still get benefits, as long as that income is not earned from employment but, for example, from investments or inheritances.

If there is a family-member in this position, and if there are other elder family-members who are concerned about qualifying themselves for long-term care Medicaid benefits, the elders’ funds can be funneled into an irrevocable trust to benefit the SSDI recipient. There is no penalty against the elder for that kind of gift, even if the elder makes it during the five-year Medicaid look-back period. This strategy can preserve many thousands of family dollars.

For the disabled who are impoverished

The program for people in this category is called Supplemental Security Income (SSI). The purpose behind this program is to provide for people’s basic needs like food, shelter, and medical care. SSI pays an average of around $800.00 monthly plus Medicaid coverage and Section 8 housing assistance. These benefits are available for people who are disabled, who have not worked and have not contributed to the Social Security system, and who own no more than around $2,000.00.

Financial planning under SSI must be done carefully to preserve these benefits, but they are worth the trouble; the medical benefits are especially valuable. The SSI rules are fairly complicated. Gifts of the “wrong” kind – even simply stocking a disabled family-member’s freezer – could cause benefits to be reduced or lost.

Young people who became disabled before they turned 22 may be eligible for another  program, comparable to SSI, the Childhood Disability Benefits program. The rules under this program resemble SSI rules, but with additional wrinkles to do with the parents’ Social Security status.

What a difference one letter makes

It is essential to know which program the disabled person is under. SSDI recipients enjoy freedom to inherit or receive (but not to earn) money. SSI recipients do not enjoy that freedom. The addition of one letter in the acronym – a “D” – makes a big difference.

Trusts for the disabled

Trusts aren’t just for the rich. For disabled people, trusts are essential to shelter money for their benefit. Think of a trust like a treasure chest. The original owner stocks the chest with money and property. The assets are then managed according to trust instructions. For the disabled, those instructions detail how the money is to be spent, to ensure that the disabled person’s benefits aren’t jeopardized.

If money is left in a will, the will must also create a trust suited to retaining disability benefits. The days are long past when a two-page will would do the job.

Party of the first part, the third part, or everybody into the pool

You may remember that scene from the movie Night at the Opera, where Groucho and Chico tear out hunks of a contract identifying the parties. In the disability context, though, there’s an important difference between a first-party trust and a third-party trust.

Let’s say Sally became disabled before she was able to work. She sued an insurance company to compensate her for her injuries. She has been waiting years for the settlement to come in. In the meantime, she is disabled from working, she ran out of resources on which to live, and, thus, she qualified for SSI benefits. Now the settlement has finally arrived – but she still wants to protect her SSI benefits, especially for medical costs. Accepting the settlement money directly could put an end to those benefits.

Sally should put her settlement into a “first-party” trust. This kind of trust must provide that whatever money is left in the trust after Sally dies be paid back to the government for what it paid on Sally’s behalf. If Sally’s trust is set up like that, she will continue to receive SSI.

(There is a host of names for this kind of trust, including “self-settled” or “d4a or d4c” or “payback trust” or “special needs trust” or “supplemental needs trust” or “SNT.” All these monikers refer to the same “first-party” idea.)

Now let’s say that Sally didn’t sue, but her generous grandfather wants to give her money. Grandfather’s lawyer stops him from giving Sally money straightaway in a lump sum, because that would lose Sally her SSI benefits. Instead, the lawyer puts grandfather’s money into a “third-party” trust for Sally’s benefit. (Grandfather is a third party.) Third-party trusts contain highly specific conditions under which money can be paid to Sally, only for perks that are above and beyond Sally’s basic needs that SSI pays for.

If, on the other hand, the disabled beneficiary is over age 65, a “pooled” trust can also be created, with either “first-party” or “third-party” funds. The trust pays out, and is managed, by a nonprofit organization that is knowledgeable about the disability rules and that aggregates smaller trust assets into a larger fund. This kind of “pooled” trust – similar to the “first-party” trust described above – must also contain provisions to pay back the government and the nonprofit after the disabled beneficiary dies.

A bank account of one’s own

Disabled people are also permitted to keep their benefits plus their own bank account, known as an “ABLE” account (“Achieving a Better Life Experience”). In an account like this, the disabled can deposit and spend around $12,000.00 or more annually, depending on state law, up to around $100,000.00 total deposits. The general idea is that even SSI benefits can be retained and ABLE money can still be spent on anything that legitimately improves or maintains a disabled person’s health, independence, or quality of life.

The basic premise

So, while the rules hedging disability benefits can be complicated, the basic premise is this: that the disabled may stay well, enjoy themselves, and participate as integral members of community life.

Contact our Ruston, LA office by calling us at (318) 255-1760 or schedule an appointment to discuss how we can help you plan for your disabled loved one.