A few months ago, I read an article from disabilityscoop, about couples who sadly have been forced to consider divorce, as a way to provide health and long-term care for their children with special needs.
It may or may not surprise you, but it can be very difficult for families to get public assistance for their loved ones with special needs. In some states, it’s practically impossible, unless the family is living at or below poverty level. I’ve met a number of families, who like the couple in the article, have the means to provide food, clothing, and shelter for their loved ones, but cannot afford to pay health and long-term care costs. There are a number of federal and state program available to individuals with special needs, but they typically require that the potentially eligible individual have little to no income and resources. Many disabled persons who are eligible for Supplemental Security Income (SSI), Medicaid or other government benefits, depend on these benefits to provide basic food, shelter and/or medical care. Unfortunately, we do not live in a country where healthcare and long-term care are inexpensive, so even those who do not depend on these programs for food, clothing, and shelter, need access to the benefits, in order to offset their health and long-term care costs.
Like the family in the article and numerous others, if you have a loved one with special needs, odds are, you’d do anything to protect them and make sure they receive the care they need. You’d probably be willing to relocate to another state, work three extra jobs, purchase additional insurance coverage, just to make sure he or she has everything they want and need. I talk about planning for the unexpected all the time, but if we are all honest with ourselves, most of the things we need to plan for are often NOT unexpected. They are usually inevitable. We will all die someday. It is inevitable. None of us know when we may die or become incapacitated. But odds are, if you have a loved one with special needs, they will someday have to live without you. How do they support themselves then? Perhaps you can make them the beneficiary of a large life insurance policy, buy them a home, make sure they’re set. That should cover it, right? Maybe, but how do they survive on whatever inheritance you leave them, without spending it all on health and long-term care costs?
Here are two tools you and your family can use, to help you proactively and properly plan for your loved one with special needs.
A Special Needs Trust
A Special Needs Trust (SNT) is a trust that is established for an individual with special needs who is or may become dependent on public benefits. The trust is specifically designed to meet certain supplemental needs and to improve the quality of life for the beneficiary, the special needs person. Most importantly, the SNT is created so as to not affect the beneficiary’s potential eligibility to public benefits. The trust would be available for the benefit of the beneficiary, and to provide him or her with resources that public benefits do not provide. For example, SNT funds may be used for in-home care services that may not otherwise not be affordable to the beneficiary.
For the purpose of proactive planning, there are two types of SNTs you should be aware of: A third-party SNT and a first-party or self-settled SNT. A third-party SNT is created using the assets of a loved one, typically a parent or grandparent, for the benefit of the individual with special needs. Whereas, a first party or self-settled SNT is created using the assets of the individual with special needs.
A self-settled SNT would be appropriate in the case of a litigation settlement. For example, if an individual who was in a car accident and sued the “at fault” driver successfully, and the individual is deemed disabled by the time the lawsuit settlement is reached, instead of the settlement funds being given outright to the now disabled person, the funds could be placed into a self-settled SNT for the benefit of that individual. This strategy may not be appropriate in all circumstance, but it would preserve entitlement to public benefits, while allowing the individual with special needs to supplement his or her needs with the settlement funds, increasing his or her quality of life. Self-settled SNTs have been recognized by federal law since 1993 under 42 USC §1396p(d)(4)(A). However, a self-settled SNT contains a mandatory payback provision, meaning that upon the death of the beneficiary, the State will be paid back from the remaining trust assets up to the amount of public benefits expended on behalf of the beneficiary during his or her lifetime.
A properly crafted SNT may supplement/provide for needs such as medical and dental expenses, annual independent check-ups, necessary or desirable equipment (for example, a specially equipped van), training and education, insurance, transportation and essential dietary needs. However, the rules often change on the types of expenses that can be paid for by a special needs trust. Because this is an ever-changing area of the law, you should contact an Elder Law or other qualified attorney licensed in your state, if you are considering a special needs trust as part of your estate plan.
ABLE Act/ABLE Accounts
ABLE Accounts are tax-advantaged savings accounts for individuals with special needs and their families. The Achieving a Better Life Experience Act of 2014 allows states to opt into state-sponsored savings accounts. These accounts are similar to the educational 529 savings accounts in terms of tax implications. So long as an individual is deemed disabled before the age of 26, that person may become the owner and designated beneficiary of an ABLE account. Any person (the account beneficiary, family and friends) can contribute an amount less than or equal to the annual gift tax exclusion amount (currently $15,000) each year, without causing the individual with special needs to be disqualified for SSI or Medicaid benefits. However, these contributions must be made in cash. ABLE accounts are also subject to a maximum contribution amount. The total limit over time that could be made to an ABLE account will be determined by the individual state and their limit for education-related 529 savings accounts.
Similar to a Special Needs Trust, The ABLE Act allows distributions from these accounts to be made tax free so long as they are used on a “qualified disability expense.” A “qualified disability expense” means any expense related to the designated beneficiary as a result of living a life with disabilities. Such expenses include, but are not limited to, expenses for education, housing, transportation, employment training and support, assistive technology and personal support services, health, prevention and wellness, financial management and administrative services, legal fees, oversight and monitoring, funeral and burial, and other expenses that may be identified from time to time in future guidance published in the Internal Revenue Bulletin.
Individuals with special needs often face “quality of life” challenges compared to those without special needs. Many times, individuals with special needs require added expenses to meet those needs. The added financial burden often leads individuals with special needs to depend on public benefits to help them meet those costs. Unfortunately, public benefits will not meet all of the needs of an individual with special needs. If you have a loved one with special needs, it is important to plan early. Being proactive and planning for the inevitable, will ensure that the special needs of your loved one continue to be met, long after you are gone.