What Every Parent Needs to Know
When a person hires an attorney to do their estate planning, they want to provide for themselves and their loved ones during their lifetime, and – upon their incapacity or death – give what they want, when they want, and, if they can, save every last fee, tax, or court cost possible.
When a person has a disabled child, they want their child to live as independently as possible in the family home. If possible, they may want their child to work, because that is likely their child’s dream.
Supplemental Security Income Benefits
When a child with a disability turns 18, the government treats them as an adult. An adult disabled prior to age 22 is entitled to Supplemental Security Income (SSI) benefits, provided that they have less than $2,000 in assets and their income is less than the amount they receive in SSI benefits. There are other benefits available, but the only benefit that requires special estate planning is the SSI benefit.
This article discusses the ability families have to preserve this benefit, which gives the disabled person access to medical benefits while providing them with the ability to live as independently as possible — perhaps even in the family home.
Turn to a Specialist
Most financial-planning professionals are taught the benefits of estate planning through the lens of a revocable living trust. Living trusts avoid probate and court fees, and they can be designed to reduce or eliminate estate taxes. An attorney who understands public benefits and planning for those who are disabled can prepare a special kind of trust designed specifically to pass on an inheritance to a disabled child. These trusts are called special needs trusts or supplemental needs trusts.
Take Advantage of a Special Needs Trust
A special needs trust can be contained within a revocable living trust or created as a separate trust, enabling other family members to contribute either through their living trust or by making annual gifts. It can hold life insurance benefits, 529 plans, and can receive IRA benefits in a manner that allows the IRA to be stretched out over the lifetime of a the beneficiary. One of the greatest advantages of a special needs trust is that it can be used to provide for many things.
The SSI benefit is specifically designed to provide for food and shelter — the trustee of a special needs trust can buy other items for the beneficiary, such as wheelchairs, vans, toiletries, and computers, as well as pay for caregivers, without any reduction in the SSI benefit. If the trustee provides food or shelter, the SSI benefit will be reduced, but not eliminated. This year, providing shelter through a special needs trust reduces the benefit $231.
Plan Ahead to Avoid Reduction in Benefits
It is critical that a family with a disabled child avoid a few common estate planning mistakes. If a family establishes a Uniform Transfers to Minors Act account, for example, then the child will be entitled to the funds, and their benefits can be reduced or eliminated or worse — the child could burn through the money too fast on frivolous things.
If the money in the account is substantial, a court-ordered trust may be required. This will result in substantial court costs and attorney fees, and the court may require reimbursement for Medi-Cal benefits. If a person on SSI is the direct beneficiary of a retirement plan or insurance plan, their SSI benefit could also be reduced or eliminated in that case.
Likewise, if the beneficiary receives an inheritance, they will lose benefits until the inheritance is spent unless it can be converted to an exempt asset.
A special needs trust must meet specific requirements in order to protect the disabled beneficiary. The trustees selected must understand how public benefits work and how to make distributions in a manner that will not reduce or eliminate benefits, and the trust may be designed in a manner so that it can be dissolved if it becomes unnecessary.
The opportunities to assist families of disabled children through the use of special needs trusts are many and very rewarding. If you would like more information about supplemental or special needs trust, or you would like to hear a presentation on planning for disabled beneficiaries, please contact Martha Patterson today!