Life Care Planning: Family with special-needs children needs specialized solutions

By Sandra W. Reed

Frances and Samuel Preston are Mimi and Boppa to their only son’s three children. They adore these youngsters, are deeply concerned about their welfare and want to provide for their financial welfare. They especially worry about Sammy, Boppa’s namesake, as he was involved in a serious automobile accident the past year and, as a result of his injuries, will need special care for the rest of his life.

Providing for Special Needs Child for Life

The Prestons know that Sammy received a substantial sum in settlement from the driver who caused the accident, but they are afraid that even this amount will not be sufficient to pay for all his needs over a lifetime. Both Sammy’s parents and grandparents, of course, want to do everything they can to see that Sammy gets the best care available.

In its statutorily required recommendations to the legislature dated September 2012, the Texas Children’s Policy Council reported an estimated 1, 141,616 children in Texas have special health care needs. That means that the Preston family is just one of hundreds of thousands of Texas families faced with providing for children with special needs.

Governmental Special Needs Assistance Programs 

Sammy’s family, as most families with children with disabilities, will not likely be able to pay for all his special needs without assistance. A number of state and federal programs provide benefits for special needs children to assist with the cost of care. These programs include Medicaid, Temporary Assistance to Needy Families (TANF), Medically Needs and Children’s Medical Programs (TP 40 programs), Children’s Health Insurance Program (CHIP), In-Home and Family Support Program (IHFSP), Community Living and Support Services (CLASS), Medically Dependent Children’s Benefit (MDCB), Home and Community Based Services (HCS), and Supplemental Security Income (SSI).

It is essential that the Preston family and anyone with a special needs child become knowledgeable of the eligibility requirements and benefits of each of these programs. Many of these programs are needs-based programs, meaning that they have income and resource limits. Some of these benefits can be lost as a result of a personal injury award, a gift or an inheritance.

Therefore, it behooves caring parents and grandparents to seek guidance from knowledgeable professionals in planning their lifetime gifts and bequests by will to those children who may qualify for governmental benefits.

What’s A Family To Do?

Sammy’s parents are confused about how they should deal with the lump sum of money Sammy has received in settlement. The older Prestons are considering giving each child the maximum allowable amount they can give each year without incurring a gift tax.  Seems like a good idea, generous and helpful, but is it?

Sammy’s Settlement for Personal Injury

Sammy may need the benefits available under Medicaid or Supplemental Security Income (SSI). Generally, a person applying for these benefits may not place his own money in a trust for himself and still qualify. However, funds that would otherwise disqualify a child for Medicaid or Supplemental Security Income (SSI) can often be diverted into a Supplemental Needs Trust (SNT, also known as a Special Needs Trust), authorized by federal law.

The express purpose of the SNT is to maintain a child’s eligibility for public benefits, while preserving adequate funds to provide needs that are not covered by governmental monies. A parent, grandparent, legal guardian or the court may establish a SNT on behalf of a “child” under the age of 65, and this trust will not disqualify the beneficiary from Medicaid.

A trust that meets these Medicaid exception rules will not disqualify the beneficiary for SSI.  Upon the death of the beneficiary of the trust, Medicaid will receive any remaining trust funds up to a total of all the state’s Medicaid payments on behalf of the beneficiary. However, SSI does not require any reimbursement from the trust for SSI benefits paid out.

The trust must be irrevocable, meaning it is permanent and cannot be revoked. Also, it should not allow the trustee to have discretion to make distributions of income for the benefit of the child because all the income that the trustee could distribute to the child, whether the trustee actually distributes it or not, is going to be attributed to the child. This could – probably would, in most cases – create income for the child that would disqualify the child for certain needed governmental benefits.

Therefore, Sammy’s parents may need to establish a trust funded by Sammy’s settlement and preserve his right to benefits.  Funds from the trust can then be used to supplement the governmental benefits that Sammy receives.  However, even if they establish a trust for Sammy’s benefit, they must be careful to tailor the trust to avoid its being a disqualifying resource for other benefits.  In some instances, it may be possible to conserve some, but not all, benefits.

Annual Gifts from the Grandparents

The Prestons may follow their plan of giving cash outright in the maximum amount allowable without incurring gift tax to grandchildren other than Sammy. However, if they follow this plan with Sammy, these gifts may jeopardize important government benefits to which he may be entitled. The older Prestons can set up a trust for Sammy and deposit his annual gift into the trust each year. Trusts created by them as third parties with funds that do not belong to Sammy are not a countable resource which would disqualify him for Medicaid or SSI benefits.

Can the Prestons Rely on Online Forms to Create Sammy’s Trusts?

The Prestons are savvy Internet users and they have located sites which purport to provide forms at a cost far less than those that a lawyer would charge to prepare the trust. They are frugal people who have always been prudent in making expenditures. Both father and grandfather have run their own businesses and prepare their own tax returns each year. Each thinks he could competently complete the trust forms provided online.  Good idea or bad idea?

The Prestons should avoid reliance on Internet forms. Instead, they should seek the counsel of a lawyer who is familiar with:  (1) the qualifying rules and regulations for programs that might assist Sammy; (2) the vehicles to manage resources and income effectively to avoid loss of benefits under the needed programs; and (3) the drafting skills to create any documents, including trust documents, which are needed.

Sandra W. Reed is an attorney with Katten & Benson, an Elder Law firm in Fort Worth, Texas.  She lives in beautiful Somervell County, near Chalk Mountain. If you have questions about this column or wish to suggest a topic of interest, she may be contacted by phone at 254.797.0211 or by email at swreed2@yahoo.com

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