A Primer on Special Needs Planning

special needs planning portrayed by young girl with down sundrom

In honor of October as Special Needs Law Month, let’s take a look at planning for persons with disabilities or special needs to live their best lives regarding benefits and protecting assets. Family money can be carefully managed to fit the disability-benefit rules and still provide additional perks for the person with disabilities or special needs. And though the rules can be strict, people with disabilities are still permitted autonomy to own some money for their personal use and yet retain their valuable benefits.

Benefits for Persons With Special Needs Who Have Previously Worked

People in this category have contributed Social Security deductions while employed, but they can’t work now due to a disability. These people can get benefits of around $1,000 monthly, and eventually Medicare coverage, under the Social Security Disability Income program (SSDI). This program permits the person 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 or if there are other elder family members who are concerned about qualifying for long-term care Medicaid benefits, the SSDI funds can be funneled into an irrevocable trust to benefit the SSDI recipient. There is no penalty against the recipient for this sort of self-settled trust even if made during the five-year Medicaid look-back period. This would, though, be subject to Medicaid pay-back if those benefits are every obtained.

Benefits for Persons With Special Needs 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. These benefits are available for people who are disabled and who own no more than around $2,000 (for a single person).

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, such as putting someone else's name on a deed, 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 that, for children under age 18, involve the family's economic status.

What a Difference One Letter Makes

It is essential to know which program the disabled person is under. SSDI recipients enjoy 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 – the D – makes a big difference.

special needs trust on clipboardUsing Special Needs or Supplements Needs Trusts

Trusts aren’t just for the rich. For people with disabilities or special needs, 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 someone with a disability or special needs, those instructions detail how the money is to be spent to ensure that the 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. And since we never know who in our family might one day needs assistance with these types of benefits, the days are long past when a two-page will would do the job.

A host of names for these kind of trusts exist, including self-settled trust; d4a or d4c; payback trust; and special needs trust or supplemental needs trust or SNT. All these monikers refer to the same idea of protecting funds for a person with special needs or disabilities.

First-Party; Third-Party; and a Pooled Party

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 now she needs to use caution to protect her SSI benefits (especially the medical benefits). Accepting the settlement money directly could put an end to those benefits.

First-Party Trusts

Sally could 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.

Third-Party Trusts

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 cause Sally to lose her SSI benefits. Instead, the lawyer puts grandfather’s money into a third-party trust for Sally’s benefit. (Grandfather is the third party.) Third-party trusts contain highly specific conditions under which money can be paid to Sally such as only for perks that are above and beyond Sally’s basic needs that SSI pays for.

Pooled Trusts

If, on the other hand, the beneficiary who is disabled is over age 65, funds can also be put into a pooled trust. This is typically done with first-party funds. The trust pays out and is managed by a nonprofit organization that is knowledgeable about the disability rules. The trust 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 beneficiary dies.

Achieving a Better Life Experience

Persons with disabilities or special needs 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 person (or a trustee or guardian) can deposit and spend around $12,000 or more annually, accumulating up to around $100,000 total. 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 the person's health, independence, or quality of life.

This Month and Every Month . . . .

While the rules hedging disability benefits can be complicated, the basic premise throughout the year is this: persons with disabilities have a variety of benefits that might suit them best. Working with a special needs planning attorney can help understand both the alphabet soup involved in the benefits as well as the best ways to protect those benefits. Please contact McCreary Law Office or call the Jacksonville, FL office at 904-425-9046 or the Houston, TX office at 713-568-8600.

Attorney Jana McCreary

Jana R. McCreary's Profile Image
Houston Estate Planning and Elder Law Attorney Jana R. McCreary has been an attorney for over eighteen years, a career move she made after working for over a decade with adults and children with intellectual disabilities and mental illness. Graduatin… Read More

Contact Me Today for a Consultation

Contact