What is fair for a Family with a Child with Special Needs

Teacher with preschoolerAs parents, it’s hard to treat all children fairly, despite their different personalities and capabilities. Most try to ensure that one child never feels less loved than another. Some will carry that over into their estate planning. However, there are times when inequity may be a better choice. A recent Tickertape article is appropriately titled “Estate Planning for Special Needs Children: Trying to Be Even-Steven?” The article says that one instance when fair is not always equal, is when you’re planning the future for a special needs child after you die.

Children with special needs are typically eligible for state and federal benefits to provide them with assistance for their long-term support. Among the most common are Supplemental Security Income (SSI) and Medicaid. In many states, SSI may qualify children for Medicaid, or Medicaid comes automatically with SSI. These are need-based benefits that are means-tested. SSI recipients have a strict assets threshold of $2,000 for an individual. If a special needs child gets an inheritance, it might push him or her, above that ceiling.  This could result in ineligibility for the program benefits that might be used to cover medical, therapeutic, or housing needs.

When money is paid directly to the child as beneficiary, it can cut SSI benefits. The same is true, if the special-needs heir disclaims the inheritance.

Government benefits may be retained, if an inheritance is set up in a Special Needs Trust (SNT), which is designed to help a beneficiary with special needs and preserve government aid while protecting assets. The trust allocates inheritance assets to the child with special needs, but it’s via a third-party.

However, there might be tax implications. While the inheritance itself isn’t taxed, the income that it generates in a special trust is typically taxable at trust tax levels. Creating an SNT can be complicated, and the rules can vary from state to state. Speak to a qualified trust attorney to be sure that all income is reported properly and there are no deductions left on the table.

Treating children equally when one has special needs, may result in creating an inequality. Because of the government program eligibility requirements, you must consider the net tax implications when dividing your estate. Be straightforward with your children as to your intentions, especially if one child will be needing long-term care. Knowing the plans will help everyone prepare for the future.

Reference: Tickertape (June 14, 2017) “Estate Planning for Special Needs Children: Trying to Be Even-Steven?”


Review These Retirement Planning Criteria

401k piggy bankStock Investor’s recent article, “6 Retirement Estate Planning Criteria You Must Address,” says every retiree’s investment objective should address these six criteria:

  1. Minimum required yield. This is the first factor when looking for reliable long term income. It is calculated based on household income requirements and investable assets—typically IRAs, taxable brokerage accounts and other savings that are planned for retirement income. When the required percent of investment (portfolio yield) increases, so does the income risk. When the yield is too high to be practical, traditional thought says to liquidate some of your principal by gradually drawing down your investment portfolio over retirement years or by using an insurance product like a single premium immediate annuity.
  2. Income Reliability. This means the income, just like a paycheck, will be there regularly and will have a low risk of fluctuation—and an even lower risk of being reduced or eliminated.
  3. Income growth that keeps up with inflation. This can come from the investments organically growing their dividends over the years or from the excess income the actual investments produce that are accumulated and used to supplement future household income with inflation.
  4. Liquidity. This is the ease with which investment securities can be converted into cash. This will be a high priority, if you think a need could arise that would require an unplanned tap into the principal of the investment portfolio.
  5. Future capital preservation of the investment principal. Conventional wisdom says that retirement savings will be consumed and the savings will decumulate. Capital preservation is a priority, if you want to maintain the investment capital to meet future possible household major expenses—like assisted living costs or creating a testamentary special needs trust (a trust created at your death in your estate) to provide for a disabled child or grandchild, to provide for a grandchild’s college expenses or to donate a favorite charity.
  6. Simple transfer to the surviving spouse. In many instances, a spousal retirement account has just one person who builds, monitors, and manages the portfolio. Therefore, it’s important to have an easy transition for the surviving spouse to continue the management of the income portfolio.

Reference: Stock Investor (May 24, 2017) “6 Retirement Estate Planning Criteria You Must Address”


ABLE Act a Big Break for the Disabled

Person in wheel chairThe Achieving a Better Life Experience, or ABLE ACT, was passed by Congress in 2014 and lets individuals with disabilities establish special tax-advantage accounts to help them with specific expenses.

Family and friends can contribute up to $14,000 annually to the accounts, but these accounts don’t count against Supplemental Security Income or other program income limitations, reports The Las Vegas Review-Journal in “Nevadans with disabilities will save money under ABLE Act.”

The program is available to Nevadans on the basis of disability or blindness under the SSI program or under the Social Security disability, retirement and survivors program. In order to be eligible, the individual’s disability must have occurred before age 26.

The funds in an ABLE account can be used for education, housing, transportation, health care, assistive technology, assistance in getting and keeping work and other approved expenses.

The Nevada ABLE Act program is administered by the State Treasurer, and the Nevada Aging and Disability Services Division will provide program education and outreach.

“We are very excited to bring this opportunity to Nevada families,” Nevada State Treasurer Dan Schwartz said in a statement.

The money deposited in these accounts will be invested, and the increased value of these assets will be exempt from the means-tested Medicaid or Supplemental Security Income programs.

Reference: Las Vegas Review-Journal (January 26, 2017) “Nevadans with disabilities will save money under ABLE act”


Retirement in Special Needs Families

Bigstock-Elder-Couple-With-Bills-3557267The big challenge for many Special Needs Families is balancing the financial needs of retirement with the long-term needs of a child with a disability. Those latter needs typically will outlive the parents.

Morningstar’s recent article, “Retirement Planning for Special-Needs Families,” explains that the need is growing. One in every five Americans has a disability, and 20 million families have at least one family member who has a disability, says the National Disability Institute. The costs can be extremely high, with the lifetime cost of caring for a person with autism ranging from $1.4 million to $2.4 million, according to an advocacy and research group. Lifetime costs are similar for people affected by other severe impairments.

While government benefit programs provide some assistance, the eligibility rules vary depending on when a disability is incurred. There’s a set of rules for people disabled as children (prior to age 22) and another for those disabled at older ages. Here some key topics for consideration and action:

  • The care plan should include the safety of the child, along with aspects of life fulfillment, including work, learning and play.
  • Projected cash flow needs will depend on the type of disability, the capability of the individual needing care and the level of care needed.
  • Investment allocations. Families who have a child with special-needs should be more conservative in how they allocate their retirement portfolios, and maintain a higher level of cash.
  • Government benefits include Social Security, Medicare and Medicaid.
  • Families need to understand all of the government rules on asset and income limits for a person with disabilities.
  • A Special Needs Trust is a critical part of a family retirement plan.
  • Beneficiary designations must be structured properly, because inheritances can jeopardize government benefits eligibility.

Quality planning is complicated. Families who have children with special-needs should consult with an experienced special needs trust attorney.

Reference: Morningstar (January 17, 2017) “Retirement Planning for Special-Needs Families”


Massachusetts Looks at Changing Special Needs Trusts

Old ladyA recent article in The Boston Globe, “MassHealth may force seniors to make hard choice,” explains that disabled seniors in the state may need to scrap the trusts they created to pay for extra services, like home health aides, or risk losing public benefits.
MassHealth, the state’s Medicaid health insurance program for nearly two million low-income and disabled residents, is contemplating changes to its eligibility requirements that would make it harder for residents over age 65 to establish special-needs trust (SNTs) accounts and still qualify for nursing home care and other health services from state and federal government programs.
Massachusetts officials say the proposed changes are designed to ensure that the state’s Medicaid rules adhere to the 2008 federal Medicaid guidelines, along with reducing the strain on the $15 billion MassHealth budget. These changes would require disabled seniors to spend down their personal financial resources, including money that’s held in a trust, before using MassHealth.
“As part of our regulations review, MassHealth proposed some clarifications to its eligibility regulations to ensure compliance with both federal and state law,” said Sharon Torgerson, a spokeswoman for MassHealth.
Advocates for disabled seniors say the changes will deny some residents small comforts that improve their quality of life. This change, they argue, could wind up costing the state more money by making those who are living independently move into more expensive nursing home care financed by taxpayers.
Individuals must get approval from their trust administrators to spend money, and they typically must submit bills for expenses like dental work not covered under Medicaid, health aides, clothing, and utilities.
The median annual cost for a shared room at a nursing home facility in Massachusetts in 2016 was about $135,000, according to an annual survey conducted by Genworth Financial, Inc.
Trusts have traditionally been a method for disabled seniors and their families to plan for long-term care—particularly if they have complex needs but don’t have children to help with expenses. To qualify for the state program in Massachusetts, an individual’s assets can’t exceed $2,000, and monthly income is limited to $100. Trust money had traditionally been exempt from those eligibility requirements.
However, in 2008, the federal Centers for Medicare & Medicaid Services clarified the rules, telling states that, in general, disabled individuals over 65 couldn’t transfer money into a pooled trust without a penalty. Essentially, that meant they couldn’t go on Medicaid until they had used up their assets. Officials explain that there are other factors considered in determining Medicaid eligibility, like the amount of money in a trust and why it was deposited.
Pooled trusts and transfers are complicated issues. These transfers don’t automatically make someone ineligible for Medicaid, a spokeswoman for the Centers for Medicare & Medicaid Services explained.
Massachusetts health officials in December held a hearing on the proposed changes. They’re considering comments from the public before making a final decision.
Reference: Boston Globe (January 3, 2017) “MassHealth may force seniors to make hard choice”

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