Enabling the Disabled
Let’s take a look at planning for disabled people so they can live their best lives. Family money can be carefully managed to fit the disability-benefit rules and still provide additional perks for the disabled person to enjoy. And, though the rules can be strict, disabled people are still permitted autonomy to own some money for their personal use and yet retain their valuable benefits.
For the disabled who have formerly worked
People in this category have contributed Social Security deductions while employed, but they can’t work now due to disability. These people can get benefits and Medicare coverage, under the Social Security Disability Income program (SSDI). This program permits the disabled to receive income from any source and still get benefits, if that income is not earned from employment but, for example, from investments or inheritances.
If there is a family-member in this position, and if there are other elder family-members who are concerned about qualifying themselves for long-term care Medicaid benefits, the elders’ funds can be funneled into an irrevocable trust to benefit the SSDI recipient. Currently there is no penalty against the elder for that kind of gift, even if the elder makes it during the five-year Medicaid look-back period. This strategy can preserve many thousands of family dollars.
For the disabled who are impoverished
The program for people in this category is called Supplemental Security Income (SSI). The purpose behind this program is to provide for people’s basic needs like food, shelter, and medical care. SSI pays an average of around $800.00 monthly plus Medicaid coverage (with New York State’s OTDA kicking in some additional funds so the total under the program is close to $900/month) and in some states Section 8 housing assistance. These benefits are available for people who are disabled, who have not worked and have not contributed to the Social Security system, and who own no more than around $2,000.00. Currently, the income cap in NYS is around $900 per month for a single person and $1,300 per month for a couple, and the resource limits are $2,000 and $3,000, respectively.
Financial planning under SSI must be done carefully to preserve these benefits, but they are worth the trouble; the medical benefits are especially valuable. The SSI rules are fairly complicated. Gifts of the “wrong” kind – even simply stocking a disabled family-member’s freezer – could cause benefits to be reduced or lost.
Young people who became disabled before they turned 22 may be eligible for another program, comparable to SSI, the Childhood Disability Benefits program. The rules under this program resemble SSI rules, but with additional wrinkles to do with the parents’ Social Security status.
What a difference one letter makes
It is essential to know which program the disabled person is under. SSDI recipients enjoy freedom to inherit or receive (but not to earn) money. SSI recipients do not enjoy that freedom. The addition of one letter in the acronym – a “D” – makes a big difference.
Trusts for the disabled
Trusts aren’t just for the rich. For disabled people, trusts are essential to shelter money for their benefit. Think of a trust like a treasure chest. The original owner stocks the chest with money and property. The assets are then managed according to trust instructions. For the disabled, those instructions detail how the money is to be spent, to ensure that the disabled person’s benefits aren’t jeopardized.
If money is left in a will, the will must also create a trust suited to retaining disability benefits. The days are long past when a two-page will would do the job.
Party of the first part, the third part, or everybody into the pool
You may remember that scene from the movie Night at the Opera, where Groucho and Chico tear out hunks of a contract identifying the parties. In the disability context, though, there’s an important difference between a first-party trust and a third-party trust.
Let’s say Sally became disabled before she was able to work. She sued an insurance company to compensate her for her injuries. She has been waiting years for the settlement to come in. In the meantime, she is disabled and thus precluded from working, she ran out of resources on which to live, and, thus, she qualified for SSI benefits. Now the settlement has finally arrived – but she still wants to protect her SSI benefits, especially for medical costs. Accepting the settlement money directly could put an end to those benefits.
Sally should put her settlement into a “first-party” special needs trust. This kind of trust must provide that whatever money is left in the trust after Sally dies be paid back to the government for what it paid on Sally’s behalf. If Sally’s trust is set up like that, she will continue to receive SSI.
(There is a host of names for this kind of trust, including “self-settled” or “d4a or d4c” or “payback trust” or “SNT.” All these monikers refer to the same “first-party” idea.). Though the acronym for both “special needs trust” or “supplemental needs trust” is SNT, the former is usually reserved for a “first-party trust” while the latter – for the “third,” outlined below.
Now let’s say that Sally didn’t sue, but her generous grandfather wants to give her money. Grandfather’s lawyer stops him from giving Sally money straightaway in a lump sum, because that would lose Sally her SSI benefits. Instead, the lawyer puts grandfather’s money into a “third-party” trust for Sally’s benefit. (Grandfather is a third party.) Third-party trusts contain highly specific conditions under which money can be paid to Sally, only for perks that are above and beyond Sally’s basic needs that SSI pays for.
If, on the other hand, the disabled beneficiary is over age 65, a “pooled” trust can also be created, with either “first-party” or “third-party” funds. The trust pays out, and is managed, by a nonprofit organization that is knowledgeable about the disability rules and that aggregates smaller trust assets into a larger fund. This kind of “pooled” trust – similar to the “first-party” trust described above – must also contain provisions to pay back the government and the nonprofit after the disabled beneficiary dies.
A bank account of one’s own
Disabled people are also permitted to keep their benefits plus their own bank account, known as an “ABLE” account (“Achieving a Better Life Experience”). In an account like this, the disabled can deposit and spend around $12,000.00 or more annually, depending on state law, up to around $100,000.00 total deposits. The general idea is that even SSI benefits can be retained, and ABLE money can still be spent on anything that legitimately improves or maintains a disabled person’s health, independence, or quality of life.
This month and every month . . .
So, while the rules hedging disability benefits can be complicated, the basic premise throughout the year is this: that the disabled may stay well, enjoy themselves, and participate as integral members of community life.