Brian Fischer, CFA, CFP® Financial Analyst
Special needs planning is often narrowly thought of as simply creating a special needs trust. However, depending on the individual’s situation and needs, it may require much more. This article will focus on the resources and strategies available to those with special needs and their families who care for them.
Federal legislation requires local governments to provide children with disabilities education and other related services that are designed to meet their needs. These resources include Early Intervention (EI) services for children younger than age three and special education that is directed by an Individualized Education Plan (IEP) for children up to age 21 (26 in Michigan). Taking full advantage of what is available to your child not only can help him or her reach full potential, but can also help conserve your resources and identify things to consider while planning for your child’s life after school.
It’s important to note that eligibility for special education benefits is not affected by income and asset ownership. EI services and special education vary by state; more information about each may be found at Autism Speaks1 and the Center for Parent Information & Resources.2
Government benefits are subject to strict eligibility rules. Although income and assets do not affect eligibility for special education benefits, they do affect eligibility for Social Security and Medicaid. Consequently, an important aspect of special needs planning involves protecting eligibility to receive government benefits.
While a child may not utilize these benefits prior to the age of 18, planning to preserve eligibility well in advance may be prudent. Even if monetary assistance isn’t needed, remaining eligible may be necessary to obtain services such as life skills training.
Social Security Income (SSI) and Social Security Disability Income (SSDI) both provide income to those who meet Social Security’s disability eligibility requirements.3 SSI is a needs-based program available to those with minimal income and resources, while SSDI is an entitlement program for individuals, and possibly their dependents, who have paid into Social Security. Some information about each is outlined below.
Assets are limited to $2,000 for an individual or child under the age 18 living at home with one parent, and $3,000 per couple or a child living at home with both parents. Some assets not counted include your primary residence, a vehicle, and household goods.
- Monthly benefits for 2017 are $735 per individual and $1,103 per couple. These payouts are offset by income. Social Security’s calculation to measure income against these limits is rather complex and can be viewed here.4
- Also, as an added benefit, some states provide a supplement to SSI.
- Benefits received are based on work history and family size.
- There is a monthly earned income limit of $1,170. There are no unearned income or asset limits.
- The 2017 maximum benefit per individual is $2,687 with a total family benefit somewhere in the range of 150-180 percent of that number.
Similar to SSI, Medicaid is a need-based program. However, Medicaid is administered on the state level. As a result, benefits and eligibility vary by state. Typically, if an individual qualifies for Social Security, he or she will qualify for Medicaid as well.
Children’s Health Insurance Program (CHIP)
This program provides health insurance to children under the age of 19 in families that are ineligible for Medicaid because their income is too high. Income eligibility varies by state.
Home and Community-Based Services
Provided through Medicaid, these services help individuals continue living at home or in the community instead of at another residence or in an institution. Services provided vary by state.
Although a stay-at-home caretaker may not have income, the care he or she provides has value. Replacing the loss of this care can be expensive. As a result, it may be prudent to consider purchasing life insurance on all primary caretakers, regardless of income. The amount and type of life insurance will depend on your family’s needs. Some broad questions to ask that may help in determining what kind (term, permanent, second-to-die), if any, life insurance is to be purchased:
- How long is the insurance needed?
- How much can be afforded?
Keep in mind, to preserve eligibility for government benefits, it may make sense to name a trust or someone other than the special needs individual as the beneficiary of life insurance proceeds.
Special Needs Trust
A special needs trust can be an integral part of special needs planning. Generally, it can be used to preserve eligibility for government benefits and provide supplemental resources to the beneficiary. Additionally, it can set clear expectations for the use of funds. For example, giving a special needs individual’s inheritance to a sibling to manage may create confusion and the possibility of the special needs individual not getting the resources he or she needs.
There are many rules regarding the creation and use of special needs trusts, and these rules vary by state. Consider consulting a lawyer if a trust is needed. An attorney familiar with special needs trusts may be found at Special Needs Answers5 or Special Needs Alliance.6
There are two kinds of special needs trusts: first- and third-party. A first-party trust is funded by the individual with special needs or, in other words, the beneficiary. It generally is created when the beneficiary receives an inheritance or a legal settlement. A third-party trust, on the other hand, is funded by anyone other than the beneficiary. Aside from the source of funding, these trusts differ in what happens to the assets after the beneficiary dies. A first-party trust’s remaining assets pay back Medicaid, whereas a third-party trust’s remaining assets may be distributed to named heirs. (First-party trusts are also known as Medicaid payback trusts.)
If costs or limited resources make the use of a trust prohibitive, a pooled trust may be a viable alternative. Pooled trusts maintain assets for the benefit of a group of individuals under the umbrella of a single trust, thus potentially reducing costs. Funds are distributed to the beneficiaries in proportion to what they contributed.
As mentioned earlier, keeping income and assets to a minimum to preserve eligibility for government benefits is an ongoing issue. The enactment of the Achieving a Better Life Experience (ABLE) Act in 2014 created a savings option that may provide some relief in keeping assets to a minimum to preserve eligibility for government benefits.
- Funds in the account may be used for any “…expense related to the designated beneficiary as a result of living a life with disabilities.”7 Expenses may include basic living expenses, housing, transportation, and health care.
- Investment earnings are not taxed if funds are used for qualifying expenses. If funds are used for unqualified expenses, taxes and a 10% penalty on earnings may apply.
- Depending on the state, there may be a tax deduction for contributions.
- They can potentially be a relatively inexpensive and more flexible alternative to a special needs trust.
- If desired it can be managed/controlled by the beneficiary. This independence can be a source of pride for the beneficiary.
- You can use any state’s plan.
- The beneficiary must have been diagnosed with a disability before age 26.
- Plan limits vary by state. However, there is a $100,000 account limit to maintain eligibility for government benefits. If the account’s balance exceeds $100,000, the individual will stop receiving Social Security benefits until the account balance is reduced to $100,000. Medicaid eligibility is unaffected.
- There is a $14k annual contribution limit from all sources.
- Only one account may be used per individual.
The National Down Syndrome Society has aggregated website links to the various state plans here.8
Letter of Intent (LOI)
A letter of intent is a set of instructions. Although not legally binding, it provides future caregivers the information needed to properly administer care. Information included may vary. It may be limited to medical care and financial information, or may be much more thorough with instructions describing the individual’s daily routine, for example, details describing what works and what doesn’t work for the individual while bathing or preparing for bed.
There certainly is a lot to consider while planning for an individual with special needs. A few general observations that may be helpful to keep in mind throughout the planning process are:
- Don’t wait until a crisis to act. Creating a plan now avoids needing someone to create a plan when you can’t. Without a plan, that someone whom steps into your shoes may be left guessing as to what is needed and most appropriate.
- It can be challenging to identify and obtain available resources. Having confidence while going through this process along with being persistent and patient can go a long way.
- Communicate your planning desires and wishes with those who are a part of the special needs individual’s life. Don’t assume the people you select to be a trustee, executor, or guardian are willing and able to perform the responsibilities that come along with those jobs.
Feel free to contact Brian Fischer with any questions by phone 305.448.8882 ext. 235 or email: BFischer@EK-FF.com.
Advocacy Groups and Other Resources
There are numerous advocacy and charitable organizations that are focused on providing help to the special needs community. A few that may be of interest are listed below.
Early Intervention Services by State – State websites aggregated by Autism Speaks.
Resources for those with Disabilities by State – State websites aggregated by Center for Parent Information & Resources.
The Arc – The Arc promotes and protects the human rights of people with intellectual and developmental disabilities and actively supports their full inclusion and participation in the community throughout their lifetimes.9
Special Needs Alliance – The Special Needs Alliance (SNA) is a national organization composed of attorneys dedicated to the practice of disability and public benefits law. Individuals with disabilities, their families, and their advisors rely on the SNA to connect them with nearby attorneys who focus their practices in the disability law arena.10
Easterseals – For nearly 100 years, Easterseals has been the indispensable resource for people and families living with disabilities.11
Autism Speaks – Autism Speaks is dedicated to promoting solutions across the spectrum and throughout the life for the needs of individuals with autism and their families through advocacy and support, increasing understanding and acceptance of people with autism spectrum disorder, and advancing research into causes and better interventions for autism spectrum disorder and related conditions.12
Special Needs Answers – The Academy of Special Needs Planners consists of special needs planning professionals such as attorneys, financial planners, and trust officers that assists them in providing the highest quality service and advice to persons with special needs and to their families.13
Find a Certified Public Accountant (CPA) – The American Institute of CPAs is the world’s largest member association representing the accounting profession, with more than 418,000 members in 143 countries and a history of serving the public interest since 1887. AICPA members represent many areas of practice, including business and industry, public practice, government, education, and consulting.15