Special Needs 101
Do you have a special family member, or know someone who does? If so, you will want to keep this article for reference and share it with others.
That said, this article and its companion article, Special Needs 102, are not substitutes for competent legal counsel regarding this very complex subject matter. Rather, they are intended to stimulate informed thought, open discussion and appropriate action while there still may be time to make appropriate legal plans.
Financial Challenges
Not only do parents of special needs children face unique challenges in providing for the daily special needs of such children while both parents are alive, they face unique challenges in providing for them after both parents are deceased. This is true whether the children are minors (e.g. under age 18 in most states) or adults.
The financial costs of caring for a special needs family member can be over-whelming. Many of these costs are incurred for needs over and above room and board. Specialized equipment and skilled professional assistance may be required for many of life’s otherwise routine tasks. Ongoing and expensive medical care is common, often without private health insurance to cover the bills. While assistance is available from state and federal governments, such assistance is subject to strict financial eligibility requirements.
Planning Challanges
Given the unique challenges faced by families with a special needs family member, the Life & Estate Plans of the parents (and grandparents) must be carefully tailored and monitored to meet objectives beyond probate avoidance and federal estate tax minimization. Although the challenges differ in each case, there is one fundamental planning objective common to all: How can parents (and grandparents) help assure adequate care throughout the lifetime of their special needs family member…without disqualifying them from government assistance?
Do No Harm
In medicine, the first rule is to do no harm. So it is with planning for the needs of a special family member. Parents and grandparents should be discouraged from establishing custodial accounts for a special needs minor child. Why? Once such a minor child reaches the age of majority under state law, the custodial account is distributed to the now special needs adult child (or to their lawfully appointed guardian/conservator on their behalf). This distribution itself may disqualify them from government assistance subject to certain financial resource limits. Similarly, if parents (and grandparents) leave assets directly to or for the benefit of the special needs family member, whether outright or in a plain-vanilla trust, then the same disqualification may result. When assets of the special needs adult exceed the governmental financial resource limits, then they may be disqualified from both Supplemental Security Income (SSI) and Medicaid until the disqualifying funds are spent-down.
Supplement, But Don't Supplant
Even if a special needs adult qualifies for SSI and Medicaid, the benefits provided are limited. Because most of the meager monthly SSI benefit* is used for food, clothing and shelter, little if any financial resources are left for life’s extras. For example, Medicaid covers medical care and prescription drugs, but not dental work. The key, then, is to financially supplement for life’s extras without financially supplanting government assistance.
But how can this be done when and inheritance is left without special planning for a special needs family member?
Payback Trusts
As part of the Omnibus Budget Reconciliation Act (OBRA) of 1993, a trust containing certain statutorily required provisions may be established to administer and distribute trust assets for a special needs beneficiary without otherwise disqualifying them from government benefits.
These special provisions require the trust to payback the government post-mortem for government benefits provided to the special needs beneficiary of the trust. If trust assets are depleted or are otherwise disqualifying them form government benefits.
These special provisions require the trust to payback the government post-mortem for government benefits provided to the special needs beneficiary of the trust. If trust assets are depleted or are otherwise insufficient to fully payback the government, then no further reimbursement is required form the family. However, if trust assets remain after the payback, then the remaining assets may be distributed to further beneficiaries designated under the trust.
Click here to read Special Needs 102
That said, this article and its companion article, Special Needs 102, are not substitutes for competent legal counsel regarding this very complex subject matter. Rather, they are intended to stimulate informed thought, open discussion and appropriate action while there still may be time to make appropriate legal plans.
Financial Challenges
Not only do parents of special needs children face unique challenges in providing for the daily special needs of such children while both parents are alive, they face unique challenges in providing for them after both parents are deceased. This is true whether the children are minors (e.g. under age 18 in most states) or adults.
The financial costs of caring for a special needs family member can be over-whelming. Many of these costs are incurred for needs over and above room and board. Specialized equipment and skilled professional assistance may be required for many of life’s otherwise routine tasks. Ongoing and expensive medical care is common, often without private health insurance to cover the bills. While assistance is available from state and federal governments, such assistance is subject to strict financial eligibility requirements.
Planning Challanges
Given the unique challenges faced by families with a special needs family member, the Life & Estate Plans of the parents (and grandparents) must be carefully tailored and monitored to meet objectives beyond probate avoidance and federal estate tax minimization. Although the challenges differ in each case, there is one fundamental planning objective common to all: How can parents (and grandparents) help assure adequate care throughout the lifetime of their special needs family member…without disqualifying them from government assistance?
Do No Harm
In medicine, the first rule is to do no harm. So it is with planning for the needs of a special family member. Parents and grandparents should be discouraged from establishing custodial accounts for a special needs minor child. Why? Once such a minor child reaches the age of majority under state law, the custodial account is distributed to the now special needs adult child (or to their lawfully appointed guardian/conservator on their behalf). This distribution itself may disqualify them from government assistance subject to certain financial resource limits. Similarly, if parents (and grandparents) leave assets directly to or for the benefit of the special needs family member, whether outright or in a plain-vanilla trust, then the same disqualification may result. When assets of the special needs adult exceed the governmental financial resource limits, then they may be disqualified from both Supplemental Security Income (SSI) and Medicaid until the disqualifying funds are spent-down.
Supplement, But Don't Supplant
Even if a special needs adult qualifies for SSI and Medicaid, the benefits provided are limited. Because most of the meager monthly SSI benefit* is used for food, clothing and shelter, little if any financial resources are left for life’s extras. For example, Medicaid covers medical care and prescription drugs, but not dental work. The key, then, is to financially supplement for life’s extras without financially supplanting government assistance.
But how can this be done when and inheritance is left without special planning for a special needs family member?
Payback Trusts
As part of the Omnibus Budget Reconciliation Act (OBRA) of 1993, a trust containing certain statutorily required provisions may be established to administer and distribute trust assets for a special needs beneficiary without otherwise disqualifying them from government benefits.
These special provisions require the trust to payback the government post-mortem for government benefits provided to the special needs beneficiary of the trust. If trust assets are depleted or are otherwise disqualifying them form government benefits.
These special provisions require the trust to payback the government post-mortem for government benefits provided to the special needs beneficiary of the trust. If trust assets are depleted or are otherwise insufficient to fully payback the government, then no further reimbursement is required form the family. However, if trust assets remain after the payback, then the remaining assets may be distributed to further beneficiaries designated under the trust.
Click here to read Special Needs 102
There are other tax-cutting strategies in addition to those mentioned here. If you would like assistance in selecting tax-saving strategies that make the most sense in your situation, contact us today!