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Estate Planning for Parents of Children With Disabilities

by: Begley Law Group

Case Study: Special needs child – public benefits retained

 

The Situation

Harry and Sally have a 21-year-old son, Bill, who has autism and lives at home with them. The couple is concerned about protecting Bill’s welfare after they die. They had always expected Bill to go live with his sister, Joan, who is married and has three children. But recently, they learned that Joan’s husband does not want to take on this responsibility. Harry and Sally now need to make alternate arrangements for their son’s future.

Harry and Sally own a home, and they have retirement plans, life insurance, and approximately $500,000 in assets. Bill receives Supplemental Security Income (SSI) benefits and Medicaid health insurance coverage. He is also eligible for a group home environment. By law, these benefits are available to Bill only if he has limited income and no more than $2,000 of assets in his name.

The Challenge

If Bill receives an inheritance from his parents, he will exceed SSI’s $2,000 asset limit and lose his benefits. If he loses SSI, he will become ineligible for Medicaid.

The Goal

Harry and Sally’s greatest concern is what will happen to Bill once they die. They want to use some of their assets to ensure that Bill’s housing, medical, and daily living needs will always be met, and that he will enjoy a good quality of life. However, they must do so without jeopardizing his public benefits.

The First Step

Importantly, Harry and Sally sought the advice of a lawyer who specializes in estate planning for individuals with special needs. While many lawyers write wills, only those who specialize in handling cases concerning people with special needs are knowledgeable about public benefits and disabilities.

If Harry and Sally had not known how to find a qualified attorney, they could have contacted the Special Needs Alliance, an organization of leading special needs attorneys around the country who specialize in planning for people with special needs.

 

WHAT FAMILIES SHOULD KNOW

Harry and Sally’s attorney helped them secure their son Bill’s future through careful estate planning. If you are the parent of a special needs child and have not yet developed a plan for your child’s future, it is important to seek the advice of an elder and disability law attorney to help you understand the role of special needs trusts in your estate plan and to guide you through many important considerations.

What Is a Special Needs Trust?

A special needs trust is a discretionary, spendthrift trust created for a person who is elderly or disabled, as a way to supplement that person’s public benefits. Those public benefits may include SSI, Medicaid, Section 8 Housing, SNAP (Food Stamps), LIHEAP (utility assistance), TANF (Temporary Assistance to Needy Families), Group Homes, and other federally or state-sponsored assistance programs.

What are the Advantages of a Special Needs Trust?

A Special Needs Trust can:

  • Help maintain an individual’s public benefits.
  • Help enrich the beneficiary’s life.

What Can the Special Needs Trust Pay For?

The type of Special Needs Trust being discussed is called a “Third-Party Special Needs Trust,” because it is being funded by assets of someone other than the trust beneficiary. The trust is usually funded by parents, but is often funded in whole or in part by grandparents, other family members, and even friends. If the beneficiary is receiving SSI, the SSI is intended for food and shelter. Therefore, any distribution from the trust for food or shelter will reduce the beneficiary’s SSI payment. The maximum deduction is one-third of the payment plus $20. Sometimes this reduction is unavoidable, but where possible the beneficiary should use the SSI payment for food and shelter and let the trust pay for other needs. Typically Special Needs Trusts pay for the following:

  • Household goods;
  • Furniture;
  • Automobile;
  • Durable medical equipment, such as wheelchairs;
  • Television, radio and cable services;
  • Computers, iPads and other forms of technology;
  • Telephone;
  • Musical instruments;
  • Recreation and entertainment;
  • Medical insurance;
  • Telephone bills;
  • Newspaper subscriptions;
  • Services of a Care Manager;
  • Vacations;
  • Movies;
  • Tax payments;
  • Medical treatment for which public funds are unavailable;
  • Education;
  • Cleaning supplies and paper products;
  • Dental care, physical therapy, massages; support services and other medical costs not included by any benefit program;
  • Home care services not covered by another program; and
  • Personal services, including lawn mowing, house cleaning, grocery shopping and babysitting.

Who Are the Parties to a Trust?

The trust has three parties:

  • Grantor – The Grantor is the person who establishes the trust. Generally, that person signs the documents and funds the trust Typically, Third-Party Special Needs Trusts are signed during the parent’s lifetime, but not funded until the parent’s death.
  • Trustee– The Trustee is the person who administers the trust. This is a complex job.
  • Beneficiary – The beneficiary is the individual with disabilities who benefits from the assets in the trust.

What Requirements must be met when Establishing a Special Needs Trust.

There are three key requirements:

  • The trustee must be given absolute control over the distribution of the funds.
  • The person with special needs cannot have the authority to revoke, amend, or terminate the trust.
  • The person with special needs cannot have the power to compel a distribution from the trust.

How Is Trust Accounting Handled?

The Social Security Administration requires an annual accounting of the expenditure of funds in a special  needs trust. This accounting is intended to ensure that trust funds have not been mishandled, and it serves to protect the person with special needs, as well as any other beneficiaries of the trust.

Because the accounting work is fairly technical and must adhere to the rules of the Principal and Income Act, it is best handled by an accountant, who can be hired by the trustee.

Once Harry and Sally understood the key issues and considerations involved in setting up a special needs trust, they were ready to select a trustee.

What is Involved in Selecting a Trustee?

Selecting a trustee for a special needs trust is one of the most important steps in the planning process because the trustee will be empowered to manage the life of the child with special needs.

A special needs trustee should have these characteristics:

  • A long-term commitment.
  • A special sensitivity to the individual’s disabilities.
  • Active involvement in monitoring the client’s services.
  • The ability to be an advocate for medical and financial entitlements.
  • The ability to be a prudent investor and distributor of trust funds.

While family members often want to serve as trustee, they typically don’t possess all of the necessary qualifications. For that reason, it is strongly recommended that families retain a professional trustee to oversee the special needs trust, with a family member named as co-trustee.

If a family selects a professional trustee from a bank, they should be sure that the bank has a trust department with an excellent track record for managing money. If a family chooses an attorney to serve as the professional trustee, they should be certain that he or she has a good track record in managing trust money, or that he or she will arrange to hire a professional money manager to oversee trust investments.

Families should be aware that a trustee’s annual fees typically range from 1% to 1.5% of the trust assets. These annual fees are a very worthwhile investment toward the preservation of security and quality of life for a child with disabilities.

How is Trust Accounting Handled?

The Social Security Administration requires an annual accounting of the expenditure of funds in a special needs trust. This accounting is intended to ensure that trust funds have not been mishandled, and it serves to protect the person with special needs, as well as any other beneficiaries of the trust.

Because the accounting work is fairly technical and must adhere to the rules of the Principal and Income Act, it is best handled by an accountant, who can be hired by the trustee.

Trust Protector.

The role of the trustee is to work with the family to achieve the desired results for the trust beneficiary. Great care should be taken in selecting even a professional trustee. However, it is always good to have a family member remain involved. Sometimes a trustee that is wonderful today may not be good in the future. The trustee may be bought by a larger institution with a different view towards Special Needs Trusts, or key personnel may retire and be replaced by other personnel without the same commitment. Therefore, it is always good to have a family member serve as trust protector. The trust protector is given the right to remove the trustee and replace them with another professional trustee.

Harry and Sally considered all of these issues before selecting a professional trustee. Harry and Sally then selected Joan to serve as trust protector

What should a Special Needs Trustee know about SSI?

The Supplemental Security Income (SSI) federal program is a minimum monthly cash payment for the aged, blind, or disabled. To qualify for SSI, a special needs individual must meet specific SSI definitions of disability or blindness. SSI eligibility is also “needs based,” so there is a limit on income and assets. SSI should not be confused with other Social Security benefits, such as retirement, survivor, dependent or other disability benefits. SSI payments are dedicated to paying for the food and shelter of a person with a disability.

If an individual with disabilities has a Special Needs Trust, the trustee must thoroughly understand SSI rules and Medicaid laws in order to prevent any reduction in available benefits. For example, if distributions from the trust are made directly to the individual, SSI benefits will be reduced, dollar for dollar. If SSI benefits are eliminated, the individual will no longer be eligible for Medicaid.

It is the trustee’s responsibility to pay the expenses of the special needs person directly to third parties. Payments for goods and services other than food and shelter have no effect on SSI. These types of payments are called “in-kind support and maintenance” (ISM).

What is the Role of a Care Manager?

A special needs trust can direct the trustee to hire a care manager. That individual specializes in making the necessary arrangements to provide the special needs individual with the level of care he or she requires. The care manager should have a social work background and related expertise, and be knowledgeable about all social service programs available to assist the beneficiary.

A good care manager will:

  • Monitor the individual’s progress.
  • Ensure that the individual’s needs are met.
  • Coordinate nutrition and cleanliness programs.
  • Make sure that exercise and physical therapy programs are maintained.
  • Coordinate any socialization or psychological counseling.
  • Ensure that the special needs person has assistive devices, if needed.
  • Have a plan and a responsible advocate available to resolve problems in a quick and timely manner, in the event of an emergency.

What is a Letter of Intent?

As part of the process of planning for the future of a special needs child, it is very important for parents to write a letter of intent laying out their wishes for the child’s care. A letter of intent provides parents with an opportunity to explain, in detail, their child’s unique life and background. The letter helps ensure that those responsible for the child’s care in the future will see him or her as a “real,” multi-faceted person, rather than a number, statistic, or faceless subject in a legal document. The letter also serves as a vital document for the trustee, providing him or her with a greater understanding of the child, and ensuring that the family’s specific wishes, goals, and expectations can be carried out.

A typical letter of intent details the child’s:

  • Unique personality traits.
  • Medical history and special needs.
  • Special education, past and present.
  • Treatment, therapy, and daily care needs.
  • Favorite foods and clothing.
  • Friends, co-workers, family members, and anyone else who is close to the child.
  • Favorite recreational activities and sports.
  • Past vacations and those he or she hopes to take in the future.

What Happens at Age 18?

Prior to age 18, the income of the parents are deemed to the child. This means that prior to age 18 the income and assets of the parents are considered to be the income and assets of the child. For most children under 18, this means they will not be eligible for SSI until they are 18. Upon attaining age 18, the parents should apply for SSI.

Also at age 18, the parents should consider applying for guardianship for the child with disabilities, if the child lacks sufficient mental capacity to make life decisions or to manage money. There are several types of guardianship including limited guardianship.

MISSION ACCOMPLISHED

Harry and Sally were thankful for the methodical, thoughtful estate planning process their attorney helped them undertake. Setting up a special needs trust and appointing a trustee, as well as a family member co-trustee, helped eliminate their unrelenting worry and anxiety about Bill’s future. With these decisions made, Harry and Sally could look forward to and enjoy their lives, knowing that Bill would be provided for through both public benefits and his special needs trust.