Get Finances in Order,For the New Year
As we all ponder how to get started implementing our new year’s resolutions, families of individuals with special needs have opportunities, some new this year, to get their loved one’s financial affairs in order.
Individuals with significant disabilities often seek eligibility for government benefit programs that provide income payments, health care, rent subsidies, or group housing. These programs include Social Security Supplemental Income (SSI), Medicaid, Community Medicaid Waiver Programs, Section 8 housing, Residential housing or assistive services through the Division of Developmental Disabilities. These programs generally have strict financial requirements. Therefore, if a participant in one of these programs inherits assets from a parent, for example, the individual may be required to reimburse his government program from the inheritance and also lose eligibility for the program until his assets are reduced to eligibility limits.
Legal planning, however, can help an individual maintain eligibility for financial needs based benefits and also preserve assets. A special needs trust can make a tremendous difference, for example, by providing a source of funds to improve a beneficiary’s life while preserving his eligibility for government programs. The goal of the trust is to enhance the beneficiary’s life while government benefits provide basic food and shelter. The trust gives the trustee broad discretion to make distributions for items that are not provided by the beneficiary’s government benefits programs.
In situations where a properly drafted special needs trust makes payments towards a beneficiary’s support, the beneficiary’s monthly SSI income check will be reduced, but other benefits can remain in tact.
Special needs trusts come in different varieties, each subject to its own set of requirements under state and federal law. A special needs trust can hold assets of the beneficiary himself, in which case the trust is a first party special needs trust. If, on the other hand, relatives or non relatives fund a trust for the benefit of another individual, the trust is considered a third party trust. First party and third party trusts are subject to different requirements. Additionally, a third party trust that is funded by an individual who is applying for Medicaid will be scrutinized under a different set of requirements.
When an individual who wishes to qualify for needs based benefits receives a sizable personal injury settlement or inherits assets, to protect the assets and qualify for the needs based program, the assets should be placed in a first party special needs trust. The law allows only certain individuals or a court to establish these trusts, and the trusts can only be set up for beneficiaries under age 65.
A variation on this type of trust is known as a “pooled” trust, where assets of many beneficiaries with special needs are pooled together and managed by a professional organization created for this purpose, but each beneficiary has his own subaccount within the pool.
Whenever an individual with special needs funds a trust for his own benefit, federal law requires that after the beneficiary has passed away, the trust pay back the beneficiary’s state that is supplying his Medicaid benefits and if applicable, contribute to the “pool.”
In contrast, typical third party special needs trusts, which are also called “Supplemental Benefits Trusts,” are not required to reimburse any governmental or professional entity after the death of the beneficiary with special needs. They are often set up by the beneficiary’s parents as part of an estate plan and are signed at the same time as the Will, Living Will, and Power of Attorney.
Special Needs Trusts are subject to rules regarding payments coming into the trust and payments going out. Trustees need to be careful how credit card charges are handled if the individual with special needs owns the card. Additionally, child support payments to the trust and payments from the trust for relatives’ travel expenses are examples of the detailed issues that the law addresses. Because the rules are complex, choice of trustee is an important consideration.
An alternative tool for families to help protect their loved ones with developmental disabilities is likely to come soon to the states. Under the Achieving a Better Life Experience (ABLE) Act, passed by Congress on December 16, 2014, individuals may soon be able to have assets that are held in designated accounts excluded for federal government benefit programs eligibility purposes. Subject to limitations, assets held in the account or used for expenses associated with the owner’s disability would not interfere with the owner’s eligibility for benefits. To avoid losing benefits under the federal government’s Supplemental Security Income (SSI) eligibility, the account must be limited to $100,000. The account also may not be funded with more than $14,000 per year. Once the President signs the Act, the states will need to establish programs to make these accounts available to the public.
With a variety of tools that can make an effective difference in the lives of individuals with special needs, this new year is a great time to start the planning.
More information on special needs.