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Children With Special Needs: Managing Their Money Over Their Lifetime

June 13, 2022Filed Under: Estate Planning, Special Needs

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The estate planning of children with special needs presents a unique challenge. Optimizing your estate to use, enhance, and enrich assets for your special needs child while maintaining their enrollment in public benefits programs requires careful planning. An estate planning attorney can prepare a special needs trust to accomplish these and other goals you have for your child.

A special needs trust can meet strict financial eligibility rules for means-tested assistance programs because the assets held in the trust are not directly available to the child. A trustee provides benefits to the child via the trust. Parents select this trustee with great care because they will act as the child’s money manager, ensuring proper financial supervision after the parents die. A letter of intent is also a powerful tool to guide the trustee to make decisions that best benefit the child’s unique needs.

In most cases, your special needs child will benefit by selecting a non-family member who is independent to act as your special needs trustee. The range of options includes:

  • A parent, sibling, or another relative, which can be risky,
  • An estate planning attorney,
  • A financial institution or a trust company,
  • A non-profit organization, particularly one with special needs experience, or
  • Co-trustees, such as a trust company, acting in conjunction with a family member.

Each option has advantages and disadvantages that require close counsel with your estate planning attorney or financial advisor before selecting your trustee.

The creation of your special needs trust can happen while you are living or at the time of your death. A last will and testament can incorporate creating the trust, known as a testamentary trust. Parents often set up the trust while alive, known as a living trust (inter vivos trust). The living trust has advantages, including the avoidance of probate, the permission for other family members to make trust contributions (usually grandparents), and the opportunity for a co-trustee to experience what it is like to administer the trust.

Whether or not your trust is revocable or irrevocable affects tax consequences. Generally, you’ll want to choose a revocable trust if the goal is to maintain maximum control over the trust and income tax considerations aren’t a concern. Establish an irrevocable trust when there are concerns regarding income tax consequences, particularly if the trust funds exceed one million dollars. In this instance, both federal estate and gift taxes may apply to the trust.

While there is much to consider and decide, the crucial step to providing for your special needs child is to make it legal. Verbally telling your family how to care for your child is insufficient. In the absence of a will, testamentary trust, or living trust, the state in which you live will determine the outcomes of your estate’s distribution. This situation is not a viable option for a special needs child or any of your children.

Receiving proper legal guidance to implement your estate plan using appropriate trusts is crucial to maintaining a healthy lifestyle for your special needs child. Do not attempt to craft these legal documents on your own, use existing forms, or copy some internet template. Each special needs child requires careful considerations that are unique to them and the challenges they face moving forward. With so much at stake, a qualified estate planning attorney with expertise in special needs planning will best suit your wishes and the child’s needs. Protecting public benefits such as Supplemental Security Income (SSI) and Medicaid and establishing a special needs trust through your estate planning can best achieve these goals. We hope you found this article helpful. If you’d like to discuss your particular situation, please don’t hesitate to reach out. Please contact our Cincinnati office by calling us at 513-771-2444 with any questions.

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Planning for Disabled People to Live Their Best Lives

November 8, 2021Filed Under: Estate Planning, Special Needs

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Enabling the Disabled

Family funds can be carefully managed to fit the disability-benefit rules and still provide additional perks for the disabled person to enjoy. And, though the rules can be strict, disabled people are still permitted autonomy to own some money for their personal use and yet retain their valuable benefits.

For the disabled who have formerly worked

People in this category have contributed Social Security deductions while employed, but they can’t work now due to disability. These people can get benefits of around $1,000.00 monthly, and Medicare coverage, under the Social Security Disability Income program (SSDI). This program permits the disabled to receive income from any source and still get benefits, as long as that income is not earned from employment but, for example, from investments or inheritances.

If there is a family member in this position, and if there are other elder family members who are concerned about qualifying themselves for long-term care Medicaid benefits, the elders’ funds can be funneled into an irrevocable trust to benefit the SSDI recipient. There is no penalty against the elder for that kind of gift, even if the elder makes it during the five-year Medicaid look-back period. This strategy can preserve many thousands of family dollars.

For the disabled who are impoverished

The program for people in this category is called Supplemental Security Income (SSI). The purpose behind this program is to provide for people’s basic needs like food, shelter, and medical care. SSI pays an average of around $800.00 monthly plus Medicaid coverage and Section 8 housing assistance. These benefits are available for people who are disabled, who have not worked and have not contributed to the Social Security system, and who own no more than around $2,000.00.

Financial planning under SSI must be done carefully to preserve these benefits, but they are worth the trouble; the medical benefits are especially valuable. The SSI rules are fairly complicated. Gifts of the “wrong” kind – even simply stocking a disabled family member’s freezer – could cause benefits to be reduced or lost.

Young people who became disabled before they turned 22 may be eligible for another program, comparable to SSI, the Childhood Disability Benefits program. The rules under this program resemble SSI rules, but with additional wrinkles to do with the parents’ Social Security status.

What a difference one letter makes

It is essential to know which program the disabled person is under. SSDI recipients enjoy the freedom to inherit or receive (but not to earn) money. SSI recipients do not enjoy that freedom. The addition of one letter in the acronym – a “D” – makes a big difference.

Trusts for the disabled

Trusts aren’t just for the rich. For disabled people, trusts are essential to shelter money for their benefit. Think of a trust like a treasure chest. The original owner stocks the chest with money and property. The assets are then managed according to trust instructions. For the disabled, those instructions detail how the money is to be spent, to ensure that the disabled person’s benefits aren’t jeopardized.

If money is left in a will, the will must also create a trust suited to retaining disability benefits. The days are long past when a two-page will would do the job.

Party of the first part, the third part, or everybody into the pool

You may remember that scene from the movie Night at the Opera, where Groucho and Chico tear out hunks of a contract identifying the parties. In the disability context, though, there’s an important difference between a first-party trust and a third-party trust.

Let’s say Sally became disabled before she was able to work. She sued an insurance company to compensate her for her injuries. She has been waiting years for the settlement to come in. In the meantime, she is disabled from working, she ran out of resources on which to live, and, thus, she qualified for SSI benefits. Now the settlement has finally arrived – but she still wants to protect her SSI benefits, especially for medical costs. Accepting the settlement money directly could put an end to those benefits.

Sally should put her settlement into a “first-party” trust. This kind of trust must provide that whatever money is left in the trust after Sally dies be paid back to the government for what it paid on Sally’s behalf. If Sally’s trust is set up like that, she will continue to receive SSI.

(There is a host of names for this kind of trust, including “self-settled” or “d4a or d4c” or “payback trust” or “special needs trust” or “supplemental needs trust” or “SNT.” All these monikers refer to the same “first-party” idea.)

Now let’s say that Sally didn’t sue, but her generous grandfather wants to give her money. Grandfather’s lawyer stops him from giving Sally money straightaway in a lump sum, because that would lose Sally her SSI benefits. Instead, the lawyer puts grandfather’s money into a “third-party” trust for Sally’s benefit. (Grandfather is a third party.) Third-party trusts contain highly specific conditions under which money can be paid to Sally, only for perks that are above and beyond Sally’s basic needs that SSI pays for.

If, on the other hand, the disabled beneficiary is over age 65, a “pooled” trust can also be created, with either “first-party” or “third-party” funds. The trust pays out and is managed, by a nonprofit organization that is knowledgeable about the disability rules and that aggregates smaller trust assets into a larger fund. This kind of “pooled” trust – similar to the “first-party” trust described above – must also contain provisions to pay back the government and the nonprofit after the disabled beneficiary dies.

A bank account of one’s own

Disabled people are also permitted to keep their benefits plus their own bank account, known as an “ABLE” account (“Achieving a Better Life Experience”). In an account like this, the disabled can deposit and spend around $12,000.00 or more annually, depending on state law, up to around $100,000.00 total deposits. The general idea is that even SSI benefits can be retained and ABLE money can still be spent on anything that legitimately improves or maintains a disabled person’s health, independence, or quality of life.

So, while the rules hedging disability benefits can be complicated, the basic premise is this: that the disabled may stay well, enjoy themselves, and participate as integral members of community life. If you’d like to discuss your particular situation, please don’t hesitate to reach out. Please contact our Cincinnati office by calling us at 513-771-2444 with any questions.

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Olivia K. Smith, Attorney at Law
Cornetet, Meyer, Rush & Stapleton Co., L.P.A.
123 Boggs Lane,
Cincinnati, Ohio 45246
Tel: (513) 771-2444
Fax: (877) 483-2119
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Olivia K. Smith, Attorney at Law
Cornetet, Meyer, Rush & Stapleton
123 Boggs Lane
Cincinnati, OH 45246
Phone: 513-771-2444
Fax: 877-483-2119
oksmith@cmrs-law.com

Family Law Attorney Olivia K. Smith, LLC represent clients in Cincinnati, Anderson Township, Batavia, Loveland, Mason, Milford and other communities in Hamilton County, Clermont County, Butler County and Warren County.

Disclaimer: The information you obtain at this site is not, nor is it intended to be, legal advice. You should consult an attorney for advice regarding your individual situation. I invite you to contact me and welcome your calls, letters and electronic mail. Contacting me does not create an attorney-client relationship. Please do not send any confidential information to me until such time as an attorney-client relationship has been established.

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