Considerations in Planning for a Special Needs Beneficiary: Part I

I met with a prospect the other day, a married couple with 3 adult children.  It was a pretty typical meeting until I reviewed their existing distributions: when the second of them passed, there estate was to be left 50-50 to only two of their three kids.  I asked why they are disinheriting their third child, and their reply was so that he would not lose his government benefits.

I hear that kind of story all of the time. Having a special needs loved one has many ups and many downs.  However, it is important to understand some of the basic rules when it comes to planning for families with special people.  There is so much to go through, I will be writing this in three parts, so look for Part II soon.

Each family I meet with is unique; everyone has their individual concerns when it comes to estate planning. Those planning for a special needs loved one must carefully consider many things when crafting their plan.  A crucial piece of planning information is determining if the special needs beneficiary is in receipt of any type of government benefit or assistance program.  There are different categories of assistance that a special needs individual might qualify for:

The first category is the entitlement programs. They are called entitlement programs because a person does not have to have low income or assets to qualify for them; the person is “entitled” to receive the benefit.  The two most common entitlement programs are Social Security Disability Income (“SSDI”), and Medicare.  There are different ways to qualify for SSDI, but typically special needs persons become eligible under the Childhood Disability Benefits or Disabled Adult Child Program. Since SSDI and Medicare eligibility is not based on income or assets, these programs do not usually need to be considered when developing an estate plan for special needs beneficiaries.

The second category is the “means tested” programs.  There are certain programs and benefits for special needs individuals where that individual’s income and assets are considered.  These “means-tested” programs include Supplemental Security Income (“SSI”), Medicaid, In Home Supportive Services, Subsidized or Section 8 Housing, and Temporary Aid to Needy Families.

For an individual receiving these types of benefits, or in need of these types of benefits, careful planning is necessary-an inheritance can disqualify receipt of the benefit.  Without the proper planning an inheritance will need to be “spent down” to the level where he or she once again qualifies. Since these means-tested programs generally do not allow a person to have more than $2,000 in their name, the receipt of an inheritance will disqualify a special needs beneficiary until he or she has spent the inheritance down to $2,000.

What is intended as a heartfelt gift can do significant damage.  An inheritance of greater than $2,000 has the potential to cause the loss of Medicaid for a special needs beneficiary, which can be devastating since he or she may not be eligible for any other kind of health insurance coverage.

It does not have to be that way.  A properly drafted plan can pass an inheritance of any size to a special needs beneficiary without the loss of benefits, even if it is a means-tested program.  If you have a special needs beneficiary, we can put together a plan that will do what you intend it to: benefit your loved one.

  Contributed by Morris Hall, PLLC Phoenix and Prescott Estate Planning Attorney, Andrea L. Claus.

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