Special Needs Trusts: Financial and Estate Planning for the Disabled; How to Structure an Estate Plan That Won't Jeopardize a Disabled Child's Eligibility for Public Assistance

By Bergstrom, Richard J. | Journal of Accountancy, July 1991 | Go to article overview

Special Needs Trusts: Financial and Estate Planning for the Disabled; How to Structure an Estate Plan That Won't Jeopardize a Disabled Child's Eligibility for Public Assistance


Bergstrom, Richard J., Journal of Accountancy


Many clients have disabled children who receive Social Security supplemental security income benefits SSI). Parents of disabled children receiving benefits face an almost insurmountable dilemma when doing financial and estate planning for the child. To the extent these parents finance the disabled child's economic needs during their life and after their death, they risk the loss of public assistance to the child. For most parents, the thought of disinheriting a child as a means of preserving SSI benefits is intolerable. Conversely, outright distribution of the parent's estate to the child may result in the loss of these benefits. In an everchanging world with unknown future economic conditions, parents want to structure an estate plan that will not jeopardize the disabled child's access to SSI and other available public benefits.

THE SOLUTION: A SPECIAL NEEDS TRUST

A planning device called a special needs trust (SNT) has been developed over the past few years to deal with government agency restrictions. The SNT is based on Social Security Administration (SSA) guidelines that permit payment for certain social, medical, educational, transportation and other services without negatively affecting SSI benefits or eligibility status. The SNT is not based on legislation and should not be regarded as an absolutely certain way to protect a disabled child's assets and access to public assistance. It is, however, preferable to the alternatives. To be effective, the SNT must be carefully structured as an emergency backup fund that supplements, but does not supplant, SSI provisions for the beneficiary's needs in such areas as food, clothing and shelter.

While the SNT can and should be structured to consider the complexities of Medicaid qualifications and disqualifications, the focus of this article is SSA guidelines, the essential elements of an SNT designed to conform to those guidelines and legislative proposals which, if enacted, would further sanction and bring additional certainty to special needs trust planning.

SSA GUIDELINES: THE PROGRAM OPERATION MANUAL

SSA guidelines are found in the Program Operational Manual (POM) used by SSA eligibility workers to determine whether the principal of a trust is includable as a resource for a claimant of SSI benefits. Conformity of an SNT to POM guidelines is vital to successful financial and estate planning for a disabled person. Nevertheless, the SSA has kept these guidelines a veritable secret from SSI recipients. It's critical, therefore, that SNT planners know both the SSI codified restrictions and POM guidelines used to determine whether trust principal is an includable resource.

SSI RESTIUCTIONS

To illustrate these restrictions, an SSI recipient is not permitted to own cash or other resources in excess of $2,000 in value. A resource (such as a trust) is considered to be "owned" by the beneficiary and thus "an includable resource" if it is available to be used for food, clothing and shelter; these are the needs SSI satisfies. There are other restrictions as well. For example, SSI recipients cannot have more than $20 per month of unearned income. Income above this amount will result in a reduction in SSI benefits on a dollar-for-dollar basis and could mean the ultimate loss of the entire public benefit.

Many clients believe they can simply make distributions of assets to third parties to avoid this restriction. Of course, if public assistance agencies are not aware of funds received by a disabled recipient, no loss of benefits can occur. Not only is this a violation of the law with a potential liability, but there is the very real risk that a significant private family subsidy will be discovered. Loss of public assistance would be the unfortunate result.

Public assistance agencies are strongly inclined to deny public assistance or attach assets of a beneficiary that might be used to provide benefits already being provided by public assistance. …

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