Trust the Government to Help Disabled Relatives?
This month, we will be talking about “trusting” the government to see to the proper care of disabled children and relatives. This won’t be a pep talk on how you can rely on Uncle Sam to see that those you love will live in comfort, both now and when you are out of the picture. Instead, we will discuss some of the government programs that can help support a disabled child or other relative - and how to preserve their eligibility to access federal and state funds, while providing for the extras that make life enjoyable.
Ask any three CPAs if there is a way to set up a trust to provide a ‘better than sustenance’ lifestyle for someone who is disabled and you will probably receive three different answers – yes, no and maybe. To some degree, all of these will be correct, buy “maybe” is the best one, because the answer to that question really depends on what you want to achieve.
If you are fabulously wealthy and just want to take care of your loved ones, set up a trust and fund it to the extent necessary to do the job. What? So you’re not fabulously wealthy, but could establish a living or testamentary trust to provide some creature comforts to improve a disabled relative’s quality of life? There may be a way to establish a trust to take care of certain expenses, while relying on governmental assistance for basic needs. If neither is true, but your wife, child, or other loved one is disabled due to another’s negligence, perhaps a legal settlement is in the works. The proceeds of that agreement may be put in trust, but basic living expenses still be covered through government programs.
Does the idea of putting money in trust (to shelter the income and resources from the means-testing requirements of certain government programs) seem far-fetched or perhaps even a little illegal? If you use a competent attorney, whose expertise is in “special needs trusts”, and you follow the rules, the plan is not as difficult as the government might have you believe.
Are your resources or income high enough to make accepting government assistance for your child or other relative feel just a little awkward? Put that thought out of your mind. As one CPA said, why shouldn’t his child benefit from the taxes he and his wife paid? The point is: you should never forego any assistance that is legally due you because of the false perception that you have too much money to access government assistance. Remember, you pay the government’s bills, so you are only getting back a little of what you have deposited (and the return on your investment is probably pretty small anyway).
Now that we’ve established your right to have what you’re legally entitled to, let’s look at a few ways the government can help support that disabled relative:
Let’s say you make $100,000 per year and your health insurance is 100% funded by your employer. Would you think that your five-year old might be entitled to Medicaid assistance? If you said yes, you must have experience in this area! Most people realize that Medicaid is both resource and income tested, but fail to understand that the “resources and income” are those of the recipient - and that recipient could be your five-year old. The truth is that it’s likely you could be a billionaire and your child still qualify for Medicaid assistance, if he or she has no assets or income. Don’t overlook this possible source of support for your child’s needs. Just be aware that the rules governing qualification vary from state to state and you must seek competent counsel in your state to preserve your rights.
The Social Security Administration also administers programs to help the disabled. Social Security Disability Insurance (SSDI) can assist adult children (age 18 or older) if they meet certain requirements that include their impairment and meet the definition of a disability for adults. The impairment must begin before age 22 and their parent must have worked long enough to be insured and be receiving retirement or disability insurance - or be deceased.
Supplemental Security Income (SSI) pays monthly benefits to the elderly, blind or disabled who do not own much and who have little or no income. This program is available to qualifying persons based on income and resources and, in the case of children up to age 18, based on their and their parents’ income and resources.
Government programs are fine if you meet the qualifications, but they generally provide only a minimal level of support. In other words, you will have a roof over your head, some clothes, and the government’s definition of food. While these will sustain life, they typically do not provide a very enjoyable quality of life. That’s why those planning for someone with a disability try to provide a mechanism to pay for more amenities without losing access to basic governmental resources.
You might be able to accomplish this goal by establishing a “special needs trust” that is funded either with the proceeds from legal settlements, an individual’s own assets, or the assets of another placed in a living trust or testamentary trust. It is impossible to state with certainty that use of such a trust is available in your state, due to the variation in laws between states; however, it is imperative that you contact a competent attorney to investigate the possibility.
A “special needs trust” provides the trustee with the authority to use the funds to pay for extras, such as education or entertainment, to help the beneficiary maintain a reasonable quality of life. With some creativity, the funds can even be used to provide better-than-basic living conditions. The key is that the trust cannot be used to meet basic needs, but supplemental health and other costs may be paid from it. Among the advantages of such trusts are: the ability to access public funds without spending down all assets to meet statutory requirements; the ability to use the Medicaid system to purchase medical equipment at prices far below that of “private pay” individuals; the ability to use every source of funds possible (since many people with special needs are outliving their primary care providers); and, of course, the ability to enhance a loved one’s quality of life.
The biggest drawback is that Medicaid will have a lien on trust assets for any costs it pays during the recipient’s lifetime, but this concern is far outweighed by the ability to provide a higher standard of living for your child or loved one. Additionally, with proper planning, the assets that remain upon the beneficiary’s death can be limited to minimize the amount available to reimburse Medicaid.
Social welfare programs place a tremendous amount of strain on state and federal budgets and governments constantly change rules to minimize the strain. If you are in a position where a “special needs trust” might be of value, let’s talk. We will be glad to assist you and your attorney in identifying your needs and determining the optimum funds necessary to meet those of your loved ones. Structuring a plan that allows you to maximize the use of public funds is complicated and requires consulting an attorney who is expert in serving those with special needs. Then again, isn’t the smile on your loved one’s face enough to compensate for the effort?
Have a terrific August.