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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.

Helpful Estate Planning Tips When You Have a Child With Special Needs

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With today’s medicine and health care advancements, children with disabilities can live more productive lives than ever before. Many scientists regard the term special needs as a euphemism for disability. Yet, the difference between the two terms is primarily one of acceptance and preference as both terms describe the four major types of disability: physical, developmental, sensory impaired, and behavioral/emotional.

When you have a child with special needs, it is crucial to plan their future with the utmost care as they will meet additional challenges to care for themselves and their lives. According to the US Census Bureau, between the years 2008 to 2019, the biggest increase in special needs was the experience of cognitive difficulty, which saw a large jump in prevalence.

Careful estate planning for parents with children of special needs is necessary to ensure government benefit access remains without foregoing family support. Below are some basic planning tips to consider to protect your child with special needs. If you would like to explore these options in more detail, please give us a call to set up a confidential meeting.

While your child is a minor, be sure you and anyone caring for your child has signed appropriate directives that specify who should care for your child in the event you are unable to. You may also consider preparing legal documents that name a guardian for your child, again if you are unable to care for your child or in the event of your death.

Once your child is an adult and has the legal capacity to sign documents, that child should have their own set of advance directives naming a trusted agent.

There are several types of special needs trusts. A First Party Special Needs Trust receives its funding from the special needs person as long as they are under 65. The funding mechanisms may be lawsuit proceeds, inheritance, or lump sum disability benefits. This trust can be established by the special needs child, parent, grandparent, or guardian and, when drafted properly, will not affect eligibility for the special needs person’s government benefits.

A Third Party Special Needs Trust permits family members to use their assets to fund a trust to benefit a person with special needs without negatively impacting that person’s eligibility for government benefits. The funds in this trust type do not have a payback provision, allowing any remaining assets to pass to other beneficiaries as designated by the trustmaker and can be created during a lifetime or under the instructions of a will.

Finally, a Pooled Trust is a community trust that a non-profit organization manages to fund the needs of many special needs beneficiaries. In essence, the non-profit acts as a trustee and can be a good option for small families or those who seek non-family member trustees. The property held by pooled trust for the beneficiary should not affect eligibility for government benefits.

If you have a life insurance policy or are considering one, you can make the proceeds payable to your third party special needs trust. Leaving permanent and term life insurance policies to this trust type will not affect the child’s government benefits. If you have retirement accounts, those may be payable to the third party special needs trust as well if there is a balance at the end of the account holder’s life.

It is not advisable to leave property for the care of your special needs child to a third party, such as another child. This third-party designate has no legal obligation to follow your wishes, leaving the use of your money to the discretion of that third party. As this type of arrangement is not legally enforceable, your child with special needs will be wholly unprotected after you die.

Create an Achieving a Better Life Experience or ABLE account. This type of account is not unlike the idea of the 529 College Savings Plan. An individual experiencing their disability before 26 years old can deposit up to $15,000 per year into their ABLE account. The account grows tax-free and can pay qualified expenses to maintain or improve quality of life. An ABLE account can also receive funds from parents, other family members, or friends who want to contribute to the account. Most government benefit programs are not affected by ABLE account funds.

There are many intricacies to consider when creating an estate plan that involves a special needs child. We welcome the opportunity to speak to you about your estate planning needs.

Please contact our Ruston, LA office by calling us at (318) 255-1760 or schedule an appointment to discuss how we can help.