| Providing
for Your Disabled Child in Your Estate Plan |
PDF VERSION |
By: Barbara A. Isenhour and Sean R. Bleck
One of the biggest worries for parents of a disabled child is how to protect
and provide
for the child after both parents have died. In addition to worrying about who
will care for
your child and what your child’s quality of life will be without you to
provide for him or
her, you need to plan for how to pay for care your child will require when you
are no
longer there.
In addition to your own assets that you plan to
set aside to care for your
child there may be important government benefits that will be part of your
overall plan to
protect your child. If your child is currently receiving SSI or Medicaid
benefits (or may
be eligible for those benefits at age 18) it is very important that your estate
plan take into
account the SSI and Medicaid eligibility rules.
Qualifying for SSI and Medicaid
The SSI program is a cash benefit program available to disabled individuals.
Even if
your child is able to work in a sheltered workshop environment, he or she may
still
qualify for SSI benefits to supplement earnings. The SSI program is intended to
be a
safety net for disabled individuals to provide a minimum monthly income. The SSI
benefit amount for 2005 is $579 per month.
Medicaid is a very important health benefit for many disabled individuals.
Medicaid can
pay for hospital care, physician services, durable medical equipment
(wheelchair,
hospital bed, etc.), medications, group home care, in-home caregivers, nursing
home care
and respite care for parents. For some individuals the cost of the care paid by
Medicaid
can come to several thousand dollars per year. People who receive SSI will
automatically receive Medicaid benefits.
To qualify for SSI or Medicaid the assets that your child owns directly cannot
exceed
$2,000. There are a few assets that are not included in this $2,000 amount
including a
car, a residence, household furnishings and certain burial arrangements. If your
estate
plan leaves your disabled child an outright bequest at your death the result is
that your
child will not longer be eligible for SSI or Medicaid benefits.
Special Needs Trust
There is a way to provide for your disabled child in your estate plan while
still preserving
your child’s SSI and Medicaid benefits. If you leave the bequest for your
disabled child
to a special needs trust instead of directly to your child, SSI and Medicaid
eligibility will
not be threatened. If the special needs trust is properly drafted the assets in
the trust will
not be considered to be owned by your child and therefore not included in the $2,000
asset limit for SSI and Medicaid eligibility.
A special needs trust directs the trustee to supplement government benefits
received by
the disabled person, not replace those benefits. The trustee cannot be required
to support
the trust beneficiary and instead must be given absolute discretion to make
distributions from the trust. The
disabled beneficiary of the trust cannot be the trustee and cannot have any
control over the trust funds.
You can provide in the special needs trust where you want any
remaining trust funds to go after the death of your disabled child. You do
not need to provide that any remaining funds in the trust be repaid to the
state Medicaid agency for Medicaid benefits received by your child.
How Will the Special Needs Trust Benefit My Child?
Parents often want to know how a special needs
trust can be used to benefit their child. It is easier to start with what the
special needs trust should not be used for. If your child is receiving
SSI or Medicaid benefits the trustee should not make cash distributions from the
trust. Cash is treated as “unearned income” and will reduce your child’s SSI or
Medicaid benefits.
So for example if Tim is receiving SSI and the
trustee of his special needs trust gives him $50 per month for spending money,
his SSI will be reduced by $30 per month ($20 of unearned income is disregarded
under the SSI/Medicaid income rules.) If your child is receiving SSI andthe
trust pays for food or shelter expenses (rent, utilities, mortgage, etc.) your
child’s SSI benefit amount will be reduced by up to one third of the SSI benefit
amount plus $20 ($213 in 2005). Payments from the trust for food or shelter
expenses are called “in-kind support and maintenance” under the SSI income
rules. The trustee may decide that it is a good use of the trust funds to pay
for shelter expenses or food. In that case the trustee will need to take into
account the affect the in-kind support and maintenance will have on the SSI
benefit amount. In-kind support and maintenance must be reported to the Social
Security Administration. How the trustee uses the trust funds to benefit you
child will depend upon many factors including:
-
how much money is in the trust;
-
your child’s medical needs;
-
your child’s living arrangements;
-
your child’s interests.
The following are a few illustrations of how a
special needs trust can be used to provide for a disabled beneficiary:
-
Tim has cerebral palsy and has lived in his
own apartment since his mid twenties. Tim receives Medicaid benefits to help
with attendant care and medical expenses so his parents included a special
needs trust for him in their estate plan. The trustee purchased a
handicapped accessible condo for Tim which is owned by the trust. The trust
has purchased a handicapped modified van to transport Tim and pays for
additional attendants to supplement the hours of care paid by Medicaid.
Without this supplemental support paid from the trust Tim would probably
have to move to a group home
-
Rachel is autistic and moved to a group home
after her parents died when she was 40. Her group home care is paid by
Medicaid. Her parents left a bequest for Rachael in a special needs trust.
The trustee determined that Rachel has an aptitude for computers and loves
to swim. The trustee has purchased a computer for Rachel and has hired a
tutor to enhance her computer skills. The trustee pays for an annual trip to
send Rachel to visit with her brother in California. Because Rachel is
unable to travel alone, the trustee pays for a companion to accompany Rachel
on the trips. The trustee has also hired a companion to take Rachel to swim
at a local pool twice a week. Medicaid pays the group home for a shared room
so the trust pays an additional monthly payment to the group home so that
Rachel can have her own private bedroom.
-
Mike has MS and receives SSI and Medicaid
benefits. When his mother died she left a bequest to Mike in a special needs
trust. Mike had been living in a substandard apartment in Seattle, paying
$400 of his SSI income for rent. After consulting with Mike about how to
help him, the trustee decided that the best way to improve Mike’s living
condition was to have the trust pay $600 per month to rent an apartment for
him and pay his utility bills. The new apartment was handicapped accessible
and in good condition. Mike will lose $213 of his SSI benefit because he is
receiving in-kind support and maintenance but more of his monthly income
will now be available for his other expenses since the trust is paying for
all of his shelter expenses.
Picking a Trustee
You will name the person or institution you want
to serve as the trustee of your child’s special needs trust. The trustee will
play a critical role in your child’s future so selection of a suitable trustee
should be done with careful deliberation. You can name more than one person to
serve as co-trustees if that is appropriate. The following are important
qualities any trustee should have:
-
Honesty, integrity and good judgment;
-
Good money management skills;
-
Empathy with your child’s needs;
-
Knowledge about the issues unique to your
child’s disabilities.
There may be a family member who would be a
suitable trustee. You may also want to consider a professional trustee,
including a bank, trust company or guardianship agency to serve as trustee. Your
attorney preparing your estate plan or parent support groups should be able to
give you recommendations regarding potential professional trustees. You can
interview the professional trustee and reach your own conclusions about who you
want to select as the trustee.
As a general rule your special needs trust
established in your estate plan will not be supervised by the court. If,
however, the trustee you named is unable to serve or is not properly handling
the administration of the trust anyone can ask the court to step in. The court
can appoint a suitable successor trustee and can demand that a trustee provide
an accounting if there is a question of mishandling finances. |
