The financial planning steps that a family takes once their child reaches the age 18 establish the infrastructure for the child’s support and well-being for the rest of the child’s life. The effects of any wrong decisions made by parents during this transition could affect the child’s life far into the future, when parents may no longer be present to care for the child. Consequently, it is absolutely essential that parents be extra careful when planning for their child’s future.
The initial step for most special needs planning is to take a look at whether a child meets the requirements of Supplemental Security Income (SSI) for support. SSI is a program for people with disabilities and may provide a limited monthly cash benefit of approximately $733 per month, the exact amount depends on the state where the beneficiary resides and on whether the beneficiary is receiving income or housing. This SSI payment may or may not present much aid for a child’s financial future (although for some families or individuals with lower incomes it may). Additionally, SSI eligibility provides a much more valuable benefit – Medicaid access. Access to Medicaid is a major reason why many families, especially those with children who have large medical expenses and needs, seek to attain SSI benefits regardless of the program’s strict income and asset limits. SSI can also provide vocational training as well as group housing services.
When a child reaches 18 years of age, he or she qualifies for SSI based on his or her own assets and income. The child must meet the government’s disability standard in order to receive benefits: have less than $2,000 in assets and receive minimal income. Each dollar of unearned income (including direct payments of cash to the beneficiary, as well as additional reductions for in-kind payment for food and shelter) and every two dollars of earned income reduces a beneficiary’s base Supplemental Security Income award by one dollar. SSI coverage ends if the SSI benefit reaches zero because of this reduction. Fortunately, in order to retain his or her Medicaid benefits, an SSI beneficiary needs only a $1 award, therefore great rewards may be obtained after careful planning.
If a child became disabled before reaching the age of 22, he or she may also collect Social Security Disability Insurance (SSDI) based on a parent’s work record, if either parent worked enough quarters to collect Social Security and is already receiving Social Security benefits or has died. Under SSDI, as long as the “adult disabled child” of the Social Security beneficiary does not perform substantial work, defined as earning more than $1,090 a month, he or she will receive a monthly benefit check. The adult disabled child also begins to receive Medicare after receiving SSDI for two years, which is a substantial benefit.
Adults who became disabled before reaching the age of 18 often receive SSI benefits until their parents retire, at that point they transition to SSDI, which is normally preferred over SSI for two main reasons: the beneficiary will no longer have to be concerned about SSI’s strict rules on savings or other sources of income; and because the beneficiary may qualify for a higher monthly benefit. Unfortunately, the transition to SSDI could be problematic since the adult child may lose eligibility for Medicaid or other programs.
A child is considered ineligible for SSI if the child has more than $2,000 in assets when reaching the age of 18. Fortunately, a parent, grandparent or court has the power to create a special trust, known as a “(d)(4)(A) ” or “first-party supplemental needs” trust to hold the child’s savings. Assets held by the trust will not be considered against the $2,000 asset limit for SSI, allowing the child to qualify. A requirement of said trusts is that upon the beneficiary’s death, remaining funds in the trust must be used to reimburse the state for any medical care the child received during his or her life. Because of this payback provision and in order to limit the state’s collection later on, planners commonly encourage trustees to pay for their child’s supplemental needs from a (d)(4)(A) trust prior to using other assets.
Finally, families may also create trusts known as “third-party” supplemental needs trusts in addition to (d)(4)(A) trusts. If these trusts are funded with the families’ assets (never with their child’s funds) and provide the trustee with complete discretion to distribute the funds for the care of the beneficiary, the funds in the trust will not be taken into account as the child’s assets. Additionally, the trusts are not required to have a payback provision, this allows families to deposit significant amounts of money into the trust without, without the concern of the government obtaining a large portion in the future. The trusts provide a special needs child with services that he or she would be unable to receive from other sources.
You don’t want to wait to plan for your child’s transition out of childhood. Contact your special needs planning attorney at (888) 597-9685 TODAY.