Plan for Your Loved Ones with Special Needs to Be Cared for During Your Lifetime and Beyond
Financial planning for individuals with special needs encompasses much more than just figuring out how to pay for day-to-day care. It can involve complex government benefits, improving your loved one’s quality of life, and long-term planning to ensure they are taken care of during your lifetime and beyond. Because of the broad nature of this topic, we have broken down the main points of focus into a series of educational articles. In this first article, we will be discussing the government benefits available to individuals with special needs and four ways to maximize these resources.
Types of Government Benefits
There are four main types of government benefits available to individuals who are diagnosed with a qualifying disability or special needs condition. These include:
Social Security Disability Income (SSDI)
This program provides monthly payments for qualifying children and adults who have a medically determinable physical or mental impairment that causes marked and severe functional limitations. The impairment must have lasted or be expected to last for a continuous period of 12 months or is expected to result in death.
To be eligible, individuals must:
- Have a qualifying disability that began prior to age 22; and
- A parent who is currently receiving Social Security retirement or disability benefits; or
- A parent who is deceased but earned enough credits to qualify for Social Security benefits.
Monthly payments for SSDI are calculated based on work experience and/or parental Social Security status.
Supplemental Security Income (SSI)
This is a federal program that pays monthly benefits to disabled, blind, or elderly individuals with limited income and resources. Blind and disabled children may also qualify for SSDI. The current maximum monthly benefit is $841,[1] but many states will also provide supplemental payments to certain SSI recipients.
Medicare
This program provides medical coverage for individuals aged 65 and older as well as people under the age of 65 with certain disabilities. An individual will generally become eligible for Medicare after receiving SSDI benefits for 24 months. Medicare consists of four “parts” that can be combined to create comprehensive healthcare coverage. Depending on which parts are selected, monthly premiums may be required.
Medicaid
Like the other benefits listed, Medicaid is a federal program. Unlike the other benefits, however, it is administered through the states. This means eligibility standards vary from state to state. Generally speaking, those who are eligible for SSI will also be eligible for Medicaid since the same asset and income tests apply to both programs. Medicaid provides the primary source of public funding for residential facilities for disabled individuals. If an individual is eligible for both Medicare and Medicaid, Medicaid can be used to supplement the coverage provided by Medicare.
So, what are some ways to help maximize the benefits of these programs to work for you and your loved ones?
1. Understand Asset & Income Limits
When maximizing government benefits it is critical to first understand the income and eligibility requirements. Each program has its unique rules and when seeking to layer the benefits, you should understand the nuances of each program. Here are a couple of things to keep in mind
- The main difference between SSDI and SSI is that SSDI is not “means-tested.” It is available to workers who have accumulated enough work credits and their children, regardless of current assets. SSI benefits, on the other hand, are means-tested. They are only available to low-income individuals who have either never worked or haven’t earned enough credits to qualify for SSDI.
- To qualify for SSI, an individual with special needs cannot have more than $2,000 in their name (not including a house, car, and a few other basic assets). They also cannot have a monthly income greater than or equal to the monthly SSI benefit. There are certain circumstances that will allow significant amounts of earned income to be excluded from the means test.
- SSDI benefits are subject to income thresholds for adult recipients. An adult individual receiving SSDI benefits cannot earn more than the Substantial Gainful Activity (SGA) level of earnings. In 2022, that amount is $2,260 for blind individuals and $1,350 for non-blind individuals.[2] This threshold does not apply to children who are considered disabled.
- The asset and income tests associated with SSI eligibility also apply to Medicaid.
- A portion of the parent’s income and resources will generally be considered available as long as the child is under 18 and living with the parents.
2. Understand the Impact of Gifts
Since there are generally fewer restrictions around benefit eligibility for children, asset and income considerations typically become much more important when a child with special needs becomes an adult. Many families, unfortunately, don’t realize that gifts given in childhood can have unintended consequences in adulthood. For instance, putting money into a custodial account for your minor child can result in disqualifying a special needs individual for SSI when they become 18. The unfortunate fact of the matter is that a substantial gift given in childhood can result in a tremendous burden down the line if it results in disqualification for government assistance. This is a prime example of why we believe proactive planning is so important.
Anything from birthday gifts to investment income, if received at the wrong time or to the wrong account, can cause disqualification. It is crucial that all family members are on the same page about how and when to give gifts in order to avoid costly unintended consequences. The out-of-pocket costs for ongoing medical and mental healthcare can be outrageously expensive for individuals with special needs, so maintaining eligibility for government benefits is often the most important planning consideration.
3. Utilize Special Needs Trusts
It is a little unrealistic to think family members will never gift income or assets to a child with special needs. After all, government benefits are only meant to cover basic living expenses. “Special Needs Trusts” can alleviate the catch-22 that exists between gifting assets to your child and putting them in a precarious situation for their long-term government benefits.
A Special Needs Trust is an irrevocable trust for the benefit of an individual with special needs. Because it is irrevocable, money or assets that are put into the trust are not counted as a resource when determining eligibility for means-tested benefits like SSI and Medicaid.
The primary financial goal of a Special Needs Trust is to ensure your loved ones will continue to receive public benefits while having sufficient assets to support them for the duration of their lifetime.
There are 4 types of commonly used Special Needs Trusts:
- Self-Settled Special Needs Trusts (also called a d(4)(a) Trust because of the Federal Law that authorizes them)
- Supplemental Special Needs Trusts
- Miller Trusts (also called a Qualified Income Trust or QIT)
- Pooled Special Needs Trust
To learn more about the specific uses of these trusts, look out for the third article in our Special Needs Planning series which will discuss each one in greater detail.
4. Partner With a Professional
Understanding the ins and outs of government programs is one thing, but actually leveraging the rules to work in your favor is an entirely different task. That’s why working with a financial professional who has experience creating comprehensive plans for special needs families can be a key part of maximizing government benefits.
At Aviance Capital Partners, we can do just that. Utilizing our Aviance WealthPlan Process™, we can help you plan for your loved one’s future in a way designed to maximize government eligibility without sacrificing day-to-day comfort. If you would like to learn more about our process, please reach out to us at wealthrelations@aviancepartners.com or (239) 598-4747 to get started today.
Aviance Capital Partners, LLC (“ACP”) is an SEC registered investment adviser located in Naples, Florida. Registration as an investment adviser is not an endorsement by securities regulators and does not imply that ACP has attained a certain level of skill, training, or ability. While information presented is believed to be factual and up-to-date, ACP does not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. Not all services will be appropriate or necessary for all clients, and the potential value and benefit of the ACP’s services will vary based upon the client’s individual investment, financial, and tax circumstances. The effectiveness and potential success of an government benefits, special needs trust, and special needs financial planning strategy depends on a variety of factors, including but not limited to the manner and timing of implementation, coordination with the client and the client’s other engaged professionals, and market conditions. The information provided is general in nature, which should not be construed as specific advice tailored to an individual reader. ACP suggests that readers consult a financial professional, attorney or tax advisory professional about their specific financial, legal or tax situation. All investment strategies have the potential for profit or loss, and different investments and types of investments involve varying degrees of risk. There can be no assurance that the future performance of any specific investment or investment strategy, including those undertaken or recommended by ACP, will be profitable or equal any historical performance level. Additional information about ACP, including its Form ADV Part 2A describing its services, fees, and applicable conflicts of interest and its Form CRS is available upon request and at https://adviserinfo.sec.gov/firm/summary/146597.
