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Elder Care: Planning for loved ones with special needs
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Elder Care: Planning for loved ones with special needs

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Parents and grandparents devote a considerable amount of their time and life savings to making sure that their children and grandchildren live the best possible life. Often the care provided by a parent or grandparent continues well after a child becomes an adult in the form of down payments for a first house, the purchase of a car or help with the expenses of daily living. When parents and grandparents make estate plans, they intend to leave money and property as continuing support for their loved ones.

A significant number of families have a child with special needs. The child may have been born with a developmental disability such as Down Syndrome, an intellectual disability or a motor disability such as cerebral palsy. Some children develop a mental illness or addiction.

It is critical that parents and grandparents give careful thought to any gift of money or bequest in an estate plan when the recipient has special needs. The child may simply be unable to manage money responsibly. For many disabled loved ones, public benefits will be necessary to pay for food, shelter and medical care, and those benefits will be disrupted by a direct gift of money.

Public benefits for people with little assets or income of their own include Supplemental Security Income (SSI) to pay for food and shelter, Medicaid to pay for medical care, the Supplemental Nutrition Assistance Program (SNAP, formerly known as “food stamps”), and the Low Income Home Energy Assistance Program (LIHEAP) for utility expenses. Before a parent or grandparent gives money directly to a disabled family member or leaves money in an estate plan, a review of any public benefits available to the family member should be done to prevent a disruption of those benefits.

For example, SSI is a federal program that supports disabled persons who cannot engage in “substantial gainful activity,” which the government says in 2020 means earning $1,260 or more in a month. If the disabled person earns less than that amount and has less than $2,000 in assets, SSI will pay $783 each month to cover the costs of food and shelter. As with most areas of the law, there are exceptions. The disabled person will still be considered to have under $2,000 if the person owns the house he or she lives in or owns one automobile. The value of clothing or other personal belongings will not count against the $2,000 asset limit.

In order to keep receiving the full amount of the $783 monthly benefit, however, the disabled person cannot receive money from family or friends, because that money could be used to pay for food and shelter. The Social Security regulations do not even permit “in kind” gifts relating to food and shelter, such as making a rent or mortgage payment or paying utility bills. Any direct gift will reduce the monthly SSI benefit.

Meanwhile, being eligible for SSI benefits automatically comes with eligibility for Medicaid to pay for health care needs. Obviously a well-intentioned gift from a loving parent or grandparent could cause a disruption of these benefits and a significant impact on the well-being of the disabled person.

Parents and grandparents may contribute to a greater quality of life for their disabled loved one, but the gift must be carefully planned. For example, the regulations permit a family member to purchase certain services for a disabled person without disrupting public benefits. A parent or grandparent could pay for auto repairs and maintenance, cell phone and land line telephone service, educational expenses, recreation and entertainment, medical care and social services. Those payments should be provided directly to the merchant and not to the disabled person receiving public benefits.

Given the problems that arise from direct gifts to a family member with special needs, there are two important tools to consider when making a plan to support that loved one.

The first is a special needs trust. Instead of giving money directly to a person with special needs, the gift is placed under the control of a trustee who has the responsibility to manage the money, invest it, make the appropriate tax filings, and decide when to distribute money for the benefit of the disabled beneficiary.

Before special needs trusts became an option, families used to disinherit their disabled children and leave money to a sibling or other relative with the idea that care would be paid for that way. That approach imposes a hefty burden on the sibling, who may have to pay taxes on that gift and would be in a position of saying “no” when the disabled sibling requested money that could disrupt public benefits.

Most family members do not have any understanding of the complex regulations that dictate how public benefits work. Properly drafted and with a carefully chosen trustee, a special needs trust avoids placing a burden on other family members and allows for wise distributions of money to the disabled person.

The money and property placed into a special needs trust will not be considered the assets of the disabled person for purposes of the caps imposed by public benefit programs. The same restrictions apply, however, to making direct distributions from the trust to the disabled beneficiary for food and shelter.

The second special needs planning tool, an ABLE account, solves that problem.

ABLE accounts were created by federal Achieving a Better Life Experience legislation in the last five years. If such an account is opened for a disabled person, anyone can contribute to it and the money in the account is not counted against the asset limits for public benefits, nor is it considered income. The money is not taxed and in Pennsylvania contributions by the family may be deductible in their own tax returns. Contributions are currently capped at $15,000 per year and the account may not contain more than $100,000.

Unlike direct gifts or distributions from a trust, the law allows distributions from an ABLE account for a wide array of expenses for a disabled person without disrupting benefits. The ABLE funds may be used to pay for housing, transportation, assistive technology, health and wellness services, financial and legal services, education and other needs. Families should keep in mind that the disabled person owns the money in the ABLE account. If the disabled person is undisciplined with spending, then the account should be used sparingly to provide only the funds necessary for living expenses.

Loving parents and grandparents will always want to support the children in their families. Special needs and disabilities may provide even more reason for financial support, but the gifts must be carefully planned. Elder law attorneys focus their practice on Social Security, Medicaid and related government benefits for people of all ages. An elder law attorney can guide a parent or grandparent through the maze of regulations to plan a gift that will enhance the quality of life for a disabled loved.

Learn more about the article’s author, and other community education opportunities, at www.keystoneelderlaw.com. Check out the book, “Long Term Care Guide: Essential Tools for Solving the Elder Care Puzzle,” at the Whistlestop Bookshop or Amazon, and see Keystone’s free directory of services for older adults at www.mypeaceguide.com. Keystone Elder Law has offices in Mechanicsburg and Carlisle. Call 717-697-3223 for a free telephone consultation.

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