Divorce and Special Needs Children

Raising a child with special needs is hard on marriage.  Today, the divorce rate among all couples is over 50%.  Although statistics differ, there is no question that divorce rates are even higher among parents of children with special needs.

When a couple divorces, it is even more important to consider the financial needs of their child with special needs than those of their other children.  Child support charts do not address those needs.  A special needs child often has even more expenses than a child without special needs.  There are all types of therapies: occupational, speech, physical, psychiatric.  There is increased need for paid respite care for the caregiver parent.  There are non-prescription costs of vitamins and other dietary needs.  There are assistive devices, specialized cars, endless items that children with special needs require.

Child Support for Children with Special Needs

For children who are receiving needs-based government services such as SSI and Medicaid, parents and matrimonial/divorce lawyers should consider establishing a first-party self-settled special needs trust.  Child support belongs to the child, not the parent, so the trust cannot be a third party trust.  Child support in New York extends past a child’s 18th birthday until they are 21, whereas the child is an adult for Medicaid purposes in New York at 18.  Establishing an SNT for those years may be essential to getting proper services for the disabled child.

Guardianship

For those children with special needs who will require a guardian, the divorcing parents should consider which parent, if not both, will become the guardian once the child turns 18.

Education

Many divorce agreements call for the parent without physical custody to pay half of a full-time college education.  Those children with special needs who attend college often cannot manage a full-time program and the separation agreement should consider this possibility.  Also, the child may continue to attend college well past their 21st birthday, so this too should be considered when making financial decisions as to education.

Redrafting Your Estate Plan after Divorce

Divorcing parents of children with special needs should retain an attorney with experience in special needs planning.  If you have any questions, please feel free to call me.

The Difference Between SSI and SSDI is More than Just a Letter

Many people, including lawyers, confuse two very different government programs for disabled persons.  Although both are overseen by the Social Security Administration (SSA), there are some significant differences  both in how the programs are funded, and to whom  the money is distributed.

Social Security Disability Income (SSDI)

SSDI is a program for disabled persons.  It has no means test.  In other words, there is no investigation into, or requirement based on, your finances to determine if  you qualify for the program based on your income. You can receive SSDI if you have a physical or mental condition which prevents you from working for at least 12 months, or a disabling condition likely to lead to your death.  Eligible candidates must be younger than 65 and have worked 5 out of the last 10 years.

A disabled person is eligible to receive Medicare after two years of receiving  SSDI.

A person’s dependents are eligible to receive dependent’s benefits under SSDI.

Supplemental Security Income (SSI)

SSI is a means-tested program, which means qualifying for SSI is based on financial need and not work history.  You must be blind, disabled or over the age of 65 to qualify.  Additionally, you must have under $2,000 in assets and limited income.  Children who are blind or disabled may also be eligible to receive SSI.

A disabled person on SSI is entitled to also receive Medicaid.

A person’s dependents are NOT eligible to receive SSI.

Dual SSDI and SSI

If a disabled person has worked enough to receive SSDI, but the benefit amount is less than the SSI amount, SSI will give you enough to equal the SSI monthly amount.

You can own your own home under both programs, however under SSI you must live in it, and you will not be paid the part of your SSI earmarked to go towards housing expenses.

You can work under either program,  but the rules are very different for each program.  It is especially important to know how many hours you can work under SSI before you lose your benefits since most people who receive SSI also receive Medicaid and cannot afford to lose their  medical benefits.

Special Needs Trusts and SSI

If a disabled person is receiving SSI and receives a windfall by either a personal injury settlement or an inheritance, that beneficiary must establish a Supplemental Needs Trust to protect the SSI government benefit.  Since SSDI is not means-tested, an SNT is unnecessary to protect you from losing your SSDI in the event of receiving a lump sum payout.

Why Use a Special Needs Pooled Trust?

When is it appropriate to choose a pooled supplemental needs trust instead of an individual special needs trust?

A pooled trust has many of the same purposes as an individual supplemental needs trust.  A pooled trust is established to provide for a beneficiaries’ supplemental needs without jeopardizing the disabled person’s government benefits.

Funds that are held in a pooled trust are available to pay for items not covered by Medicaid and SSI, including certain medical benefits.

What is a pooled trust?

The most important feature of a pooled trust is that it must be run by a not-for-profit organization. Although the assets of disabled persons are “pooled” for the purposes of investment, separate accounts are maintained for each individual beneficiary.

The pooled trust divides any earnings from its investments among the individual sub-accounts according to the percentage of assets each individual sub-account contains.

Additionally, unlike an individual special/supplemental needs trust, a pooled trust can be established for a disabled person over the age of 65.  However, any transfer of funds to a pooled trust by an individual over the age of 65 is subject to the Medicaid transfer rules.

The pooled trust is administered by a trustee who is very familiar with all the different rules and regulations of the different government benefit programs.  The trust handles requests from the beneficiary for disbursements, maintains records and reports to the various agencies that might be affected by those disbursements, and prepares tax reports.

A pooled trust offers professional management and investment by working closely with a bank or other financial institution.  Some pooled trusts coordinate care for their beneficiaries, and then pass that cost along to the beneficiary through the sub-account of the disabled person.

What types of pooled trusts are there?

  • Third party–these trusts are set up with the assets of the parents or others that do not belong to the disabled person.  The state Medicaid does not have to be reimbursed or paid back, instead the remainder can go to heirs or other organizations.  Usually the pooled trust keeps a certain percentage for the benefit of other disabled persons.
  • Self settled–This is a payback trust, much the same way an individual SNT.  However, instead of payback to Medicaid after the disabled beneficiary dies, any remaining assets are kept by the trust for the benefit of other disabled persons.
  • Income only–this is a special type of pooled trust whereby a Medicaid applicant who earns more than the allowable income can put the excess income in pooled supplemental needs trust in order to qualify for Medicaid.

When Would I Choose to Use a Pooled Trust?

It is worth considering a pooled trust instead of an individual special needs trust if the amount in the trust is small so that it would be difficult or impossible to find a corporate trustee to help with the management of the trust.  Or perhaps no one is able or willing to serve as trustee of yours or your child’s trust.  Perhaps you have no heirs to leave the trust to after the disabled person dies and you would like to see the remainder used towards other disabled persons.  These are all great reasons to use a pooled trust instead of an individual supplemental needs trust.

How Can I Help?

There are a number of different pooled trusts in New York with different fee structures and different abilities to personally handle your needs.  Please call me if you are interested in learning more about the various pooled trusts and why this might be a good option for your supplemental needs in order to become or to stay eligible for public benefits.

Special Needs Trusts and Personal Injury Settlements

When a disabled person receives a personal injury settlement, it is often a good idea to set up a Supplemental Needs Trust to receive those monies in order that any public benefits the disabled person receives not be disrupted or lost altogether.

Money received in a personal injury lawsuit are considered to belong to the disabled individual.  Therefore, a self-settled (sometimes known as a (d)(4)(A) trust, named after the section of the U.S. code that permits these types of trusts) must be established for the benefit of the disabled individual.

New York has established that it is in the public interest to allow a disabled person to use those monies to supplement government benefits while the disabled person is alive.

If the settlement is large (over $100,000) it may be a good idea to set up an individual Supplemental Needs Trust.  If it is smaller, the disabled person should consider whether a pooled trust can be set up.  This should be negotiated with the Department of Social Services (DSS) at the time of the settlement or conclusion of the lawsuit.

Payback Requirement

Funds left in and individual SNT  after the beneficiary dies must be used to pay back Medicaid.  Funds in a pooled trust are retained by the trust to be used by other disabled beneficiaries.

Individual Special/Supplemental Needs Trusts

In order to establish an individual SNT, the beneficiary must be:

  • under the age of 65
  • must be established by parent, grandparent, guardian or by an order of the court

Pooled Trusts

In order to establish a pooled trust, the beneficiary:

  • May be of any age, although establishing a pooled trust if the beneficiary has reached the age of 65 may affect the individual’s Medicaid.
  • May be established by the disabled individual themselves.

A Complex Trust

The use of these trusts involve sophisticated knowledge of both tax law and the numerous types of government benefits an individual may be entitled to receive.  A poorly drafted SNT may cause an individual to lose their public benefits.  Additionally, once a settlement is received, if the funds are still in the personal injury attorney’s trust account at the end of the month, the funds may be considered a resource, causing a loss of benefits such as Medicaid, or SSI.  It is very important to have a knowledgeable attorney establish these trusts.

Action Plan–8 Weeks to a Letter of Intent

Comprehensive planning for your child with special needs includes both legal planning to ensure financial security and information-gathering in order to write a guide for future caregivers.  My hope is to alleviate some of the worries and unique concerns parents face when thinking about the future of their special needs children.

The Letter of Intent is intended to be the place for you to be clear about your intentions for your child’s future.  The place for you to share the benefit of your knowledge about the daily needs and routines of your child.  A place to share your hopes and desires for their future.  A place to gather all the pertinent medical information and contact information of those that are most important to the health and well-being of your special needs child.

Creating a document that encompasses so much information is a labor of love.  Perhaps you have already been keeping good records, however, I suspect for most of us it has been all too easy to put off this task.

I propose that over the next eight weeks, we begin the process of what will be a continuing journal of both yours and your child’s hopes and dreams.  Why so long?  Much of the medical information may take time to gather.  You may have to dig through some old records and storage boxes.  You may need to contact some people to ensure they wish to be included in your child’s future plans, or find out who might be able to succeed them if they are no longer available.  These are important conversations, and should not be rushed.

I’m going to take this journey with you.  There’s a saying about how the shoemaker’s children have no shoes.  I have to admit I have not yet written my Letter of Intent.  I understand just how difficult and time-consuming a task this is, therefore I’m not going to ask you to do anything I am not going to do myself.  I can promise we will all sleep just a little better after completing this task.

On a practical level, if you are reading this, you have access to a computer.  Word processing software makes it easy to create a Letter of Intent that is simple to update annually or after any major change in either yours or your child’s life.  I suggest printing it out after it is finished or revised and leaving a copy with your other legal papers.

Finally, anyone who comes into my office for a consultation will leave with a CD which includes a pre-printed Letter of Intent form which can simply be filled in with your personal information and printed from your computer.  Please call me at (516) 223-4800 to make an appointment to discuss your planning needs.

Choosing a Trustee for Your Special Needs Trust: Part Three

In Part One and Part Two of Choosing a Trustee for Your Special Needs Trust, I described the numerous duties of  a Special Needs trustee and the different factors that must be considered in choosing the trustee.  In this final post, I offer some suggestions as to how to make that choice in order to fully accomplish the goals you had in establishing the trust to take care of your special needs child both financially and emotionally.

One helpful suggestion is to divide the duties of the trustee into three major categories: financial, personal and administrative.  Think about if the trustee you plan to choose is capable of managing all three of these areas successfully.  If not, there are several strategies a good estate planner can use in order to ensure your child’s SNT is successfully implemented.

Selecting the Right Trustee for Your Special Needs Trust

Family Members

One possible choice of trustee for the Supplemental Needs Trust is a family member.  You may  be thinking of choosing one of your child’s siblings or one of your own.  It is, after all, comforting to know that the disabled individual will always have someone loving looking after him/her.

The biggest problem with placing a sibling (or any other family member) in position as trustee of the disabled person’s financial affairs is the burden it places on both the sibling and the relationship the sibling has with the disabled family member.  One of the most difficult provisions of administering an SNT for a beneficiary who needs to keep their eligibility for government benefits is that for every dollar over $20 the beneficiary receives in cash, the SSI recipient will receive one dollar less.  Should the cash outlay exceed the SSI, the beneficiary is in danger of losing all public benefits.  When a sibling or other family member must be the person to have to deny his brother/sister’s request, this places everyone involved in an awkward and uncomfortable position.

Additionally, many family members will not understand all the different rules that must be followed, and will have to employ financial advisors to help manage the SNT.

Corporate Trustees

Another possibility is a corporate trustee.  In New York, a bank or brokerage house can serve that purpose.  Many clients will balk at this idea, believing a bank to be cold and disinterested.  Many financial institutions have special departments to serve the needs of disabled beneficiaries. If you would like to learn more about corporate trustees that handle Special Needs Trusts, please contact me for more information.

One valid concern about a corporate trustee is monitoring and oversight.  A second is concern over the rapid mergers and recent dissolution of even the largest players in the financial services industry.

Also, many corporate trustees will not accept smaller accounts and take a percentage off the top for administrative services.

Co-Trustees and The Trust Protector

In order to handle all aspects of managing an SNT, you can choose co-trustees, wherein a family member and the corporate trustee manage the trust together.  The SNT should establish what happens in case of a conflict between a corporate and a family member trustee.

Another solution is to name a trust protector in the Special Needs Trust to monitor the corporate trustee.  That person might be a family member, accountant, or a member of a local chapter of NAMI or ARC.  This relieves the family member of the many duties associated with properly administering and investing the assets in the SNT, but allows for replacing the corporate trustee should the corporate trustee be neglecting the trust, investing improperly or merging its existence with another institution that might not meet the needs of the beneficiary.  This also gives the family member an “out” so that they are not seen as the “bad guy” to the disabled beneficiary.

T-E-A-M spells Trustee

The best solution, if practical financially, is to have a team in place.  This team could consist of investment managers, family members, care or case managers, long-term caregivers and most importantly the beneficiary themselves.  Part of the goal, if possible, is to promote independence for the beneficiary and while any direct management of the SNT might cause the beneficiary to lose government benefits, the beneficiary should, if able, certainly be included in the decision making process.

Choosing a Trustee for Your Special Needs Trust: Part Two

In Part One of Choosing a Trustee for Your Special Needs Trust, I discussed all the different responsibilities and jobs a trustee must fulfill to properly administer the trust.  It is also important to really assess both the current and potential future needs of your child.

Considerations to Use in Choosing a Trustee

There are a variety of factors that must be weighed and balanced in order to make the best choice possible to manage the Supplemental Needs Trust’s assets while at the same time contribute to the well-being of your special needs child.

  • What is the nature of the disability?
  • How old is the trust beneficiary?
  • Where does the disabled person currently live, and where might that person live in the future?
  • What government benefits is the child with special needs now receiving and what might they become eligible to receive?
  • What is the life expectancy of the disabled person?
  • What is the source of funding of the Special Needs Trust?
  • What skills does the potential trustee have?
  • Are there sufficient funds for the  trustee to be able to hire competent advisers such as accountants, attorneys and caregivers?
  • How available is the trustee to manage both the financial and emotional needs of the special needs child?
  • Are family members a resource to manage either the trust or a trustee?
  • Are non-family members available such as a teacher, family religious leader, an attorney or accountant?  Perhaps you or your child belong to a national organization such as the National Alliance on Mental Illness (NAMI) or the Arc (ARC)?
  • Does the disabled person have a case manager provided by the state, or a care manager provided privately?

Solutions

In Part Three of Choosing a Trustee for Your Special Needs Trust I will offer a number of different solutions to the problem of finding a trustee to administer your trust who meets the qualifications and considerations that are important to both you and your special needs child.

Choosing a Trustee for Your Special Needs Trust: Part One

Choosing a trustee to manage your child’s Special or Supplemental Needs Trust is one of the most difficult decisions you will have to make.  That decision alone often stops parents from taking the next step of setting up an appointment with an attorney who has expertise with drafting Special Needs Trusts.

After all, how can we, as parents, choose who should be responsible for managing both your disabled child’s money and also be in charge of their welfare for what could arguably be the next 60 or 70 or 80 years?  I certainly struggled with this for years.  Both my parents were only children, as is my daughter and her father, and my brother has no children.  That translates into no siblings, cousins, aunts or uncles.  I’ve spent a lot of time worrying about the future, and who will be left to care for and about my daughter after I die.  And while I plan on living for a long time, my hope and expectation is that my child will live many years past my life expectancy.

We automatically look to family members, but I hope to show you that this is not necessarily the best idea or the most practical when choosing a trustee.

The Many Hats a Special Needs Trustee Must Wear

The trustee who administers your child’s Special Needs Trust has many responsibilities:

  • Fiduciary:  Your trustee must dispense funds to the beneficiary in accordance with the provisions in the Supplemental Needs Trust.  That trustee must also invest the trust’s assets wisely in accordance with a number of laws including the Prudent Investor Act.  The Trustee must be able to handle tax matters, to keep good accounts and understand the duties of loyalty and care.
  • Government benefit issues: In addition to the fiduciary responsibility every trust mandates, the trustee of a Special or Supplemental Needs Trust must also have a complete understanding of the rules that govern Social Security, Supplemental Security Income, Medicare and Medicaid.  The trustee may need to understand Section 8 entitlements and rules of the Office of Mental Health (OMH) and the Office of Mental Retardation and Developmental Disabilities (OMRDD).
  • Meeting the needs of your disabled loved one:  The trustee must be able to understand and respond to the needs of your child.  The trustee must be sensitive to your child’s needs and also have an understanding of the special services that are available to support, encourage independence if possible and improve the quality of the life of your child with special needs.
  • Standing in your place:  The trustee can never replace you, but should genuinely care for your child.  For example, if your child should need hospitalization or institutionalization,will there be someone who will visit and ensure your child is not being neglected or abused in any way?  If your child begins to use drugs, or stops taking prescription medication, or going to therapy, or any of a number of signs we as parents know are signs of deterioration, will your trustee also know to watch for these?
  • Immortality: Your trustee must be able to manage the trust for as long as your child needs care.

Clearly, there are many things to think about.  In Part Two of Choosing a Trustee for Your Special Needs Trust, we will examine some of the considerations used to make this extremely important decision.

Is Funding a Special Needs Trust a Guessing Game?

How do parents of children with special needs, whether that child is 5 or 35, predict just how much money their disabled child will need for their future comfort?  There are many variables to consider, including:  life expectancy; the rate of inflation; investment return; the amount of benefits the government will provide decades from now (although it is fairly safe to assume recipients of Supplemental Security Income (SSI) will never receive enough cash benefits to rise above the poverty level).

Luckily, special needs financial calculators are available free of charge to help you and your estate planning attorney or financial planner determine the cost of providing your child with lifelong support.  Just click on one of the following links to start the process:

Taking the Guesswork out of Funding a Supplemental Needs Trust

Step One:  Assess your child’s future capabilities.  This is more difficult if your child is still young.  Speak to your child’s medical professionals and ask for an evaluation of your child’s prospects, both short- and long-term.  If your child is already an adult, you will already have a better understanding of what his or her needs are now and might be in the future.

Step Two:  Take an inventory of what you already own.  Add life insurance policies, if any.

Step Three:  Identify current and future living expenses and future income sources for your special needs child.  Your disabled child may be able to earn income and contribute financially.  Consider the government benefits and support your child is already receiving or might receive in the future.  If your child is currently living with you, will that child be eligible for subsidized housing?  Will there be gifts and inheritances from other family members?

Step Four:  Place a dollar value on anticipated income and expenses. The online calculators use broad categories such as housing, transportation, medical care, education, or you can use more detailed lists within each category.

Step Five:   Calculate!  Using assumptions about the rate of inflation and your investment returns, you should now have a target to help you plan for your child’s future needs.

Working Towards Your Goal

Although many of these questions are very difficult for parents to consider, and very difficult to answer, beginning the process of planning for the future security of your loved ones will make you feel more secure now.

As always, if you have any questions about this post, please feel free to either call or contact me through  the contact or comments form.

How Life Insurance Can Help Your Special Needs Child

Many parents are concerned about how they can fund a supplemental needs trust, especially in these rough economic times.  Parents are also concerned about how their other children will feel if they divide their estate assets unevenly, providing more for their siblings with disabilities.  These siblings might have even more resentment if they end up being financially responsible after you are no longer able to supplement your special needs child’s benefits.  Children with autism have a normal life span and could easily need financial assistance until they are well into their 80s!  Additionally, they may need to pay for care that you are no longer able to provide, such as a care manager or help with cleaning and shopping.

Parents with a disabled child should consider buying life insurance to wholly or partially fund the special needs trust.  There are several types of insurance to consider.  Term life is the least expensive option, but the premiums increase each year as the insured (that’s you) gets older.  Since these policies need to be renewed, at some point these policies are typically dropped due to the steep increases in premiums as you age or experience health issues.  There are several types of permanent life insurance including whole and universal.  The least expensive option is known as survivorship or second-to-die life insurance.  This term policy is payable only upon the death of the second insured, when it is most needed.  It is best to consult a life insurance agent with expertise in this area.

If you have any questions about this post,  please feel free to call or drop me a line on either the comment or contact form.