Do you have a special needs child?
Chances are, if you do, that special needs child is receiving much-needed government benefits.
Those government benefits come in the way of several forms.
First, there is SSI. SSI stands Supplement Security Income. SSI is for low-income individuals who have either never worked or who haven’t worked enough of the required hours to earn work credits.
SSDI, or Social Security Disability Income is for those who have worked enough work credits.
You either qualify for SSI or SSDI, but not both.
Since most special needs children and special needs adults have never worked, they will typically be on SSI.
Since SSI is income-based, receiving a lump-sum inheritance will immediately disqualify them from SSI.
That’s bad news for the special needs person because that also takes them off Medi-Cal and Medicare, much-needed insurance plans that cover 100% of medical needs.
Furthermore, it takes years for them to re-qualify and that’s only after living at the poverty level.
Fortunately, all of this can be avoided with something called a Special Needs Trust. A special needs trust is an irrevocable trust that works in conjunction with a Living Trust (a revocable trust).
In a special needs trust, you designate a custodian to watch over the funds. You see, you will not be leaving money directly to the special needs child, rather you will be leaving it to the special needs trust. The monies sit in this special needs trust are managed by the custodian and can be used for the special needs child on most things except for food and shelter.
The reason you cannot use them on food and shelter is that SSI is taking care of that and you risk disqualification from SSI if you use the special needs trust money for the same thing.
In your living trust, you name you children as the beneficiaries, those who are going to benefit. These are your heirs. However, you don’t name your special needs child directly, rather, you name the special needs trust.
For instance, with three children, you would name:
- 1/3 to Joey Smith
- 1/3 to Johnny Smith
- 1/3 to Jimmy Smith Special Needs Trust Dated Sept 16 2014
Where Jimmy Smith is the special needs child. The other children can be left the money directly because they do not risk government-aid disqualification.
How much money can a special needs child have in their name?
Believe it or not, the SSI rules state it can only be $2,000 (two-thousand dollars). That’s not very much and also any inheritance left directly to the special needs child (as opposed to setting up and naming a special needs trust) will result in disqualification of government assistance.
Why you must apprise the entire family?
After setting up the special needs trust, be sure to let the entire family know there is one and the name of it. This way, all of your relatives know how to leave money to your special needs child Jimmy.
Life Insurance and 401k Beneficiaries and POD Accounts?
You can also re-direct the beneficiaries on your life insurance policy and 401k retirement to name the Jimmy Smith Special Needs Trust Dated Sept 16 2014, rather than just Jimmy as those too could affect the minuscule $2,000 threshold.
Also, visit your bank and change the POD, or paid on death beneficiary, to the also be the special needs trust for Jimmy’s share of the inheritance.
Conclusion
As you can see, it’s paramount to create a separate irrevocable special needs trust for your special needs child in order to preserve the government benefits including SSI and medical insurance. It’s equally important to name the special needs trust in your living trust and to apprise all relatives to do the same. Also, be sure to do this on your life insurance, 401k and POD accounts.