Saving for a Loved One with a Disability
When a loved one suffers from a disability, the challenges of managing day to day can consume your energy and make thinking of the future daunting. However, failure to plan properly may deny your loved one access to benefits that can help him or her live a fulfilling life. Caregivers must plan to integrate public benefits into their financial plans to ensure their dependents have lifetime access to an array of available services.
The Broader Challenge: Disability Costs are Daunting
The vast majority of individuals with disabilities live with their families, many for their entire lives. Furthermore, while there are school-based resources for children with special needs, it can be more difficult for adults with disabilities, around 75% of whom remain unemployed.
Meanwhile, the costs of caring for a special needs dependent are formidable. According to Autism Speaks, the cost of raising a child with autism can cost $2.4 million over their lifetime, compared with the $240,000 cost of raising a neurotypical child. Few families can cover the lifetime costs of a child with a disability. Public benefits become an important part of the equation.
Accessing Public Benefits Requires Planning Ahead
Many states offer a wealth of resources for those with special needs including:
Supplemental Security Income (SSI),
on-going medical care,
supported living arrangements,
supported employment and vocational training,
transportation assistance,
long-term care.
However, these benefits are means tested. In many states, a person with a disability can only have around $2,000 in personal assets and a limited income to qualify. As such, structuring your estate to enable the use of public benefits, which can be enhanced with private funds, is a key element of Special Needs Planning.
Watch Out for Traditional Savings Vehicles
Many parents and grandparents begin saving for their kids when the kids are born, often by opening a custodial UTMA account or a Revocable Trust. When a child with a disability is a minor, having assets in their name is not at all problematic since the parents’ assets generally disqualify them from receiving public benefits (Some benefits can still be accessed with special Medicaid Waivers – a very valuable program that requires a lengthy application and about which we are happy to speak with you in more detail).
However, once the disabled child reaches 18, they are eligible to file for public benefits. At this point, UTMAs, Trusts, and other gifting vehicles in the name of the beneficiary will be counted as belonging to the child with a disability, rendering them too wealthy to qualify for the menu of helpful publicly run programs. In such a case, families find themselves either having to spend down all the assets they have saved for their child, leaving nothing for the future, or assume all the on-going care expenses themselves. However, there are a few investment vehicles that allow families to save for their dependents with disabilities while also accessing public benefits.
The Role of Supplemental Needs Trusts (“SNTs”)
Supplemental Needs Trusts are unique from other common types of Trusts. They very specifically remove all control from the disabled beneficiary, thus enabling the beneficiary to qualify for public funds. An appointed trustee must facilitate payment from the Trust for the benefit of the dependent with a disability. As the name implies, the trust is meant to Supplement the public benefits received and certain uses, such as for housing and food, are proscribed. However, a SNT can provide quality of life funding for items such as transportation, entertainment, equipment and a wealth of other life-enriching goods and services that cannot be funded with the minimal SSI payments for which a person with a disability would qualify.
ABLE Accounts Help as Well
ABLE (Achieving a Better Life Experience) accounts for persons with disabilities mirror 529 accounts. While parents and grandparents might consider 529s to save for college for their neurotypical kids, a college saving account might not be appropriate for those with disabilities. ABLE accounts were established in 2014 to provide an alternative. They offer several advantages:
The cost to open an ABLE account is considerably lower than that of creating a Trust.
As with a 529 account, deposits are made with after tax money but grow tax free until the funds are used.
The funds must be used for a Qualified Disability Expense, a definition that is fairly wide-ranging, and, unlike SNTs, does include housing.
However, there are significant limits to ABLE accounts:
Amounts in the account over $100,000 count against public benefits so the account cannot grow considerably over time.
Beneficiaries can only have one ABLE account and that account can only receive up to the maximum annual gift exclusion each year.
The beneficiary will have access after reaching age of majority, so if caregivers are concerned about a dependent using the funds irresponsibly, the ABLE account might present logistical concerns.
Irrevocable Life Insurance Trusts (ILITs)
Lifetime care for a dependent can mean decades of costly care. Life insurance trusts are a mechanism to ensure that the estate being left for the dependent with a disability will be sufficient to cover years of expenses. The trusts require the funding of an insurance policy and a structure that differs from traditional ILITS, so must be designed in coordination with both lawyers and a knowledgeable insurance broker. Because of the costs, they are less frequently employed than SNTs and ABLE accounts, but still can have a useful place in a comprehensive estate plan.
Beware of Simply Designating Assets in Your Will
One popular, although misguided, method of planning for a child with a disability has been to leave all the assets to a neurotypical sibling, or other relative, who would assume responsibility for the disabled child’s care. This maneuver comes with serious downside risks including scenarios in which the dependent outlives the intended caregiver, or where the chosen caregiver becomes incapacitated or loses the assets in divorce or legal proceedings. We strongly recommend that you avoid this planning mechanism.
Final Remarks
Making sure your loved one with a disability can access public benefits at the age of 18 is an important element of Special Needs Planning. An essential part of that planning is establishing savings vehicles such as a Supplemental Needs Trust or an ABLE account, that will enhance their quality of life and protect the assets while still enabling them to access the benefits available to them. We invite you to begin having a conversation with us about appropriate special needs planning tools. Ultimately, crafting an estate that incorporates the unique constraints of providing for a dependent with special needs requires a specifically qualified estate attorney. We are happy to coordinate with your legal professional.
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