PLANNING FOR SPOUSES WITH DISABILITIES IN A FAMILY LAW SETTING

by Thomas D. Begley, Jr., Esquire, CELA

In planning for spouses with disabilities in a Family Law setting careful analysis must be made of the spouse’s immediate needs and also what, if any, public benefits the spouse is receiving or may be entitled to receive in the near future.  Financial issues impacting the spouse would be alimony and equitable distribution.  Alimony is income to the spouse and would affect any public benefits the spouse is receiving that are based on income.  Equitable distribution constitutes a transfer of assets to the divorcing spouse.  Depending on the nature of the assets, this may affect public benefits that have asset tests.  The first step is to identify whether the spouse is receiving public benefits, then determine what the eligibility requirements of those benefits are, and then design a strategy or strategies that would enable the spouse to maintain or obtain those benefits.

Common Benefits

Common benefits include the following:

• Supplemental Security Income (SSI). SSI is an income benefit payable to an individual with disabilities.  Income, including alimony, affects eligibility.  There is an asset test of $2,000, so equitable distribution may affect eligibility.
• SSI-linked Medicaid. SSI recipients automatically receive Medicaid.  The income and asset tests are the same as for SSI.  Therefore, both alimony and equitable distribution may affect SSI-linked Medicaid.
• Medicaid Waiver Programs. Many individuals with disabilities receive benefits under Medicaid Waiver Programs that pay for services such as home care, assisted living, and nursing homes.  The primary program furnishing these services is Managed Long-Term Care Services and Supports (MLTSS).  There is an income cap of $2,740 per month under this program, and an asset limit of $2,000.  Therefore, both alimony and equitable distribution may impact eligibility for this benefit.
• Federally Assisted Housing. Eligibility for Federally Assisted Housing is based on both income and assets.  The income is dependent on the area in which the individual resides.  There is an asset limit of $100,000.  Therefore, consideration for both alimony and equitable distribution could affect eligibility for Federally Assisted Housing.
• Supplemental Nutrition Assistance Program (SNAP). This program is commonly referred to as Food Stamps.  There is  no asset test for this program, but there is an income test.  Alimony could directly affect eligibility.  Equitable distribution would not affect eligibility indirectly.  If the assets transferred as a part of equitable distribution produced income, this would affect eligibility.
• Low-Income Home Energy Assistance Program (LIHEAP). LIHEAP has an income test, but not an asset test.  Therefore, alimony could affect eligibility.  Equitable distribution would affect eligibility only indirectly.

Strategies

            Strategies to be considered in designing a settlement for divorce would include long-term care planning strategies involving spenddown and transfers of assets.  These strategies were discussed in a previous article.  In addition, a Self-Settled Special Needs Trust would solve the problem.  Which strategy is preferable must be analyzed on a case-by-case basis.

• Self-Settled Special Needs Trust. A Self-Settled Special Needs Trust is a trust funded with the assets of the individual. In the case of alimony, the monthly payments would be considered income of the spouse with the disabilities.  In the case of equitable distribution, the assets received by the spouse with disabilities would be considered assets of the spouse with the disabilities.  If the alimony is irrevocably assigned by court order to a Self-Settled Special Needs Trust, the alimony would not affect eligibility for income tested public benefits.  If assets received in equitable distribution are transferred to a Self-Settled Special Needs Trust, this would not affect public benefits that are asset tested.  The requirements of a Self-Settled Special Needs Trust are:
• Assets of the individual. Alimony and equitable distribution would meet this test.
• Age. The individual must be under age 65 at the time the trust is funded. Alimony payments received after age 65 pursuant to the court order obtained prior to age 65 would be protected.
• Disability. The individual must be disabled as defined by the Social Security Act.  Typically, the individual would have a Disability Determination Letter from the Social Security Administration.
• Benefit. The trust must be for the sole benefit of the individual with disabilities.
• Establishment. The trust must be established by the individual beneficiary, or a parent, grandparent, guardian, or the court.
• Payback. The State Medicaid Agency must be reimbursed for any benefits paid on behalf of the spouse with disabilities on the death of that person.
• Irrevocable. The trust must be irrevocable.
• Discretionary Authority. The trust must give the trustee discretionary authority to make distributions.
• Estate Planning Documents. As a part of a divorce consideration should be given to the spouse with disabilities addressing Estate Planning documents.  Any prior Estate Planning documents will probably no longer be effective, because typically they would leave the estate of the divorcing spouses to one another and the spouses would appoint each other as executors, trustees, health care representatives, and powers of attorney.  The divorce would likely change all of those prior intentions.
• Will. The Will of the divorcing spouse should address the issue of who would be the beneficiary of the divorcing spouse’s estate.  Would it be children? If so, would trusts be required due to age or other circumstances?  Who would be the executor? Who would be the trustee? Who would be the guardian of minor children?
• Health Care Power of Attorney. Who would make the medical decisions for the divorcing spouse, if that individual is unable to make them for themselves?  Does the divorcing spouse want to be kept alive artificially if there was no hope of recovery?
• Power of Attorney. Who would make financial decisions for the divorcing spouse if that individual was no longer to make them for themselves?  What types of financial decisions would be contemplated?  Would gifting be a practical provision if the divorcing spouse needed public benefits in the future?  If so, special language must be included.  The document must also include authority for the agent under the Power of Attorney to make gifts to himself or herself if that is the intention of the principal executing the Power of Attorney; otherwise, such gifts are prohibited.