Special Needs Planning

Special Needs Trusts & Guardian Advocacy for the Disabled

Special needs planning is a unique practice area dedicated to addressing several of the challenges which will be encountered within the lifetime of a person with disabilities.  Often these challenges must be addressed by the parents or family members of the person with disabilities, whether the disabled person is a minor, a young adult, or older adult.  And, then there are those challenges that are specific to the person with disabilities for which the families or advocates must be prepared.

For the Parents

Among the many challenges facing parents and family members of persons with disabilities is planning for the time when those family caregivers will no longer be around to act.  Effective planning by parents can make all the difference in the life of the disabled person, as well as in that of his or her siblings who may be left with the responsibility for caregiving (on top of their own careers and caring for their own families and, possibly, ailing parents).  One of the most important planning opportunities for the parent is the establishment of a special needs trust which allows a disabled child to receive an inheritance without losing his or her governmental disability benefits.

Special Needs Trusts

A special needs trust is one important element in special needs planning if you have a loved one with disabilities.  It is a specialized legal document designed to benefit an individual who has a disability.  If you have a loved one who has a developmental disability or some other disability, then you can use a special needs trust to ensure that the inheritance you desire to leave him or her will used for his or her benefit.   These trusts are frequently called “supplemental needs trusts” as well.

There are two primary purposes for a special needs trust.  The first purpose is to keep assets for the benefit of your disabled loved one from counting as his or her own assets which could disqualify them for programs of government assistance, such as SSI, Medi-Cal, as well as subsidized housing and vocational rehabilitation benefits.  The second purpose — and the one that brings peace of mind to the family – is that the person with disabilities will be able to have extra care (supplemental care) over and above what the government provides.  Not only will your disabled loved one live an enhanced quality of life, but he or she will never have to be alone because the special needs trust can pay for caregivers for a life-time.

Special needs trusts may be written into your Will or your revocable living trust.  More often, however, a special needs trust is a “stand alone” legal document.  These stand alone trusts allow grandparents or siblings to contribute directly to the trust or specifically name the trust in their own estate plans to provide more funds for the person with disabilities.  And, the stand alone trusts come with greater flexibility, allowing the funding through a will or gifts from relatives and friends made directly to the trust, or through “survivorship” or “second-to-die” life insurance policies that cover both parents and pay out on the death of the second parent.

As mentioned before, special needs trust can hold an unlimited amount of assets.  And, in a properly-drafted trust, those assets are not considered countable assets for purposes of qualification for certain governmental benefits. Such benefits may include Supplemental Security Income (SSI), Medi-Cal, vocational rehabilitation, government subsidized housing (HUD), and other benefits based upon need, where the disabled person is limited to personal assets less than $2,000 in value and monthly income in even smaller amounts.

According to federal law, distributions from a special needs trust can be used for supplemental and extra care over and above what the government provides.  Consequently, if the government is providing for all of the disabled person’s needs, then the trust’s distributions will be limited in nature.  If, however, there are no government benefits available, the trust will provide for everything the disabled person needs.   Although there are Medi-Cal rules that say that the trust assets cannot be used for food or shelter, these rules have to be interpreted carefully.  There are legal ways to pay for food or shelter from the trust for the disabled person without substantially disrupting his or her government assistance.  This is one of those critical areas where working with a qualified attorney is absolutely necessary.

Some parents ask:  “Why can’t I just disinherit my disabled child and leave all my assets to my other typical children who will then hold and take care of my disabled child’s inheritance without the necessity of special needs trust?”  While it might seem like a good idea simply to leave a set amount of money to your disabled child’s sibling or other close relative, with the understanding that the money will be spent on the disabled child, this often backfires.  It does nothing other than put the disabled person’s assets at risk.  The sibling of the disabled child could be subject to liabilities, such as divorce, or a bankruptcy, or a creditor’s judgment.  Or, the sibling may die and leave the assets to his surviving spouse.  Do we really believe the surviving spouse will look out for your disabled child?  A special needs trust easily avoids these terrible potential consequences.  And, it avoids putting an emotional strain on family relations.

Finally, it is important to clarify that the type of special needs trust discussed above has been funded with assets belonging to someone other than the disabled person.  Consequently, we have been discussing a third party trust.  Federal law does not require any repayment from the trust’s assets at the time of death of the disabled person for the benefits received during his or her lifetime.  This means you have the flexibility to dictate within the special needs trust where the remaining trust assets go at the time of the disabled child’s death.

What Else?

The special needs trust ensures that the Trustee has instructions on how to make allowable distributions for the benefit of the person with disabilities.  But, beyond the sterile legal provisions of the trust document, one way to be clear about what you intend for your disabled loved one’s future is to make a “Letter Of Intent” to be given to the trustee at the time of your death. This document gives family members and others the benefit of your knowledge about your child’s capabilities, needs and fears, and can be updated periodically. A letter of intent can include: Biographical info; Financial details; Medical history and needs; Social contacts; Any negative influences you’d like to guard against; Personality traits; Skills, hobbies and physical abilities; Goals your loved one is working toward.  The wealth of information contained in a Letter of Intent will certainly make your disabled family member’s more meaningful.

Guardian Advocacy

When a disabled child turns 18, the law looks upon the disabled child as being capable of making his or her own decisions.  This, in most cases, is not simply true in reality.  Parents or family members of a disabled child may need to assist the disabled child in making decisions.  For disabled persons with developmental disabilities, guardian advocacy is an abbreviated form of guardianship.

For the Person with Disabilities

It is critically important that parents, family members, or advocates for a person with disabilities have at least a passing knowledge of programs of government financial assistance assisting disabled persons.  Most of these programs are needs-based and only provide benefits to disabled persons who have little to no assets.  These programs are SSI; SSI-related Medi-Cal; and Medi-Cal waivers for housing and care services.  In addition, there are benefits that may be available to the disabled person based on the work history of a retired or deceased parent, such as Medicare health insurance coverage and Disabled Adult Child payments (also known as CDB).  Finally, if the parent of a disabled child was a Military Retiree, as a dependent of the military retiree, the disabled child may also be eligible for Tricare under certain circumstances.

SSI and Medi-Cal

SSI is an acronym for Supplemental Security Income (SSI).  This income is paid to individuals that have been determined to meet the definitions of “disabled” established by the rules and regulations of the Social Security Administration.  In 2011, the maximum benefit is $674 per month.  In most cases, the disabled individual has not had or has had a very limited work history.  (Disabled persons with a sufficient work history are commonly eligible for Social Security Disability Income benefits, which is not an asset-sensitive program like SSI.)

To meet the SSI asset test, the disabled person can own very little.  The disabled person is limited to no more than $2000 in assets, excluding a car and a home.  Assets held in special needs trusts established by third parties, such as parents and family members, do not count.  Assets previously owned by a disabled person but held in a first party trust established under OBRA 1993 (d4a or pooled trusts) also do not count.

In CALIFORNIA, the receipt of $1 of SSI will allow the disabled person to achieve automatic enrollment in Medi-Cal for health insurance coverage and other programs.  Eligibility for SSI may also allow the disabled person to be eligible for food stamps.

Gifts, cash or inheritances received directly by a SSI beneficiary must be reported to the Social Security Administration.  And, without proper legal guidance, such receipt may result in the loss of the SSI benefit as well as loss of Medi-Cal health insurance coverage for long periods of time.

Medicare and Disabled Adult Child

When a parent of a disabled person retires or dies, a child whose disability existed prior to age 22, may be able to apply for certain income payments known as Disabled Adult Child benefits (also known as CDB).  The amount of the benefit paid is based on the parent’s work history.  Following the payment of the benefit, within a matter of months, the disabled child will also receive Medicare coverage.

Unfortunately, often the disabled child is a recipient of SSI and SSI-related Medi-Cal.  When the DAC benefit is greater than the SSI maximum benefit, then SSI will be lost and the SSI-related Medi-Cal benefit will be lost with it.  However, Medi-Cal can be maintained if proper legal planning measures are undertaken quickly.

Military Retiree benefits

There are little known benefits to a disabled child whose parent was a Military Retiree.  If the child’s disability can be documented with medical records as being manifested prior to age 18, then the disabled child is a dependent of the Military Retiree.  Just as the Military Retiree receives health insurance coverage known as Tricare, the dependent disabled child is also eligible for this health insurance coverage.  The Military Retiree needs to register the dependent disabled child through D.E.E.Rs.