As a parent, you play a vital role as the physical, emotional, and financial pillar for your children. Your daily routine revolves around their schedules and activities, from soccer practice to band rehearsals and art lessons. The ceaseless busyness of life becomes all-encompassing, and it's a significant undertaking. Now, introduce a family member with a disability, and the daily, weekly, and monthly activities expand exponentially, accompanied by necessary appointments to support your family. Navigating this added stress prompts essential questions about future care and financial planning.

Special Needs Planning, designed for individuals with disabilities, introduces complexities and nuances beyond those addressed in a typical financial plan. To comprehend what's at stake for a family with a member with a disability, a thorough understanding of the available benefits, along with an understanding of how to protect these benefits, is essential.

Medicaid

Medicaid, initially established as part of the Social Security Amendments of 1965, is a government-sponsored health care program that extends coverage to a staggering 84.5 million individuals. Encompassing low-income adults, children, pregnant women, elderly adults, and people with disabilities, Medicaid operates through a joint funding initiative between the federal government and states. The program is administered at the state level for residents who qualify for Medicaid health benefits. Individuals with disabilities can access Medicaid benefits through various qualifying avenues, with a significant portion, as of 2021, securing eligibility through Supplemental Security Income (SSI). Notably, in Pennsylvania, as of June 2023, 2 in 5 Medicaid recipients are identified as having a disability (KFF, 2023).

Supplemental Security Income (SSI)

In 1972, the inception of Supplemental Security Income (SSI) aimed to provide financial assistance to individuals with disabilities or older individuals with limited income and assets. SSI benefits, primarily allocated to those with disabilities, including blindness, are substantial, covering an impressive 85% of the designated rate. Eligibility for SSI hinges on minimal income and restricted assets, currently capped at $2,000. The basic monthly SSI benefit in 2024 is $943 for individuals, subject to adjustments based on a formula employed by the Social Security Administration (SSA), including disregarding the first $65 of monthly earnings and reducing SSI benefits by 50 cents for each dollar earned above that level (Policy basics: Supplemental security income. Center on Budget and Policy Priorities, n.d.).

 It's noteworthy that the government's definition of disability differs from the commonly used criteria by medical professionals. Disability, in the government's context, is characterized by the inability to engage in any "substantial gainful activity" (SGA) due to a medically determinable physical or mental impairment. In 2021, the government set the SGA threshold at $1,310 per month (Urbatsch, K., 2021).

For minors, individuals under 18 (or 22 if in school), the government employs a process called deeming. This involves considering the income and resources of a parent or the spouse of an SSI-eligible individual to determine the eligibility of the individual with a disability for SSI benefits. If the minor were to leave the parental home, there is a potential qualification for SSI benefits (Urbatsch, K., 2021).

Protecting benefits

You may be wondering, "This information is valuable, but why am I just learning about it now?" In a nutshell, one-third of Medicaid recipients in the United States qualify for benefits through Supplemental Security Income (SSI). Additionally, when a minor with a disability leaves their parental home, they may become eligible for benefits from both federal and state governments (Urbatsch, K., 2021). Stressing the importance of early planning is crucial. Life is unpredictable, and if, for instance, you were to pass away, or a grandparent, aunt, or uncle were to leave assets directly to an individual with a disability, it could potentially disqualify them from government benefits. Let's illustrate this with an example:

Imagine you have an adult son, Eric, aged 25, with a disability currently receiving SSI and Medicaid benefits. If Eric's grandmother were to pass away and, in her estate, name Eric as the direct beneficiary of her $50,000 life insurance policy, Eric would then possess countable resources exceeding $2,000 in his name. Despite the grandmother's good intentions to provide discretionary funds for Eric's lifestyle, designating him as the direct beneficiary inadvertently renders him ineligible for benefits.

So, how do we prevent such a scenario from affecting your family?

Special Needs Trusts

In the legal and financial planning spheres for individuals with disabilities, a highly effective tool known as a supplemental needs trust, or special needs trust, plays a crucial role. The primary aim of a special needs trust is to safeguard the beneficiary's eligibility for Medicaid and SSI benefits. Within the trust, assets are strategically managed to enhance the beneficiary's quality of life, covering expenses that go beyond the scope of SSI and Medicaid. While SSI and Medicaid typically address fundamental needs like food, shelter, and medical care (Urbatsch, K., 2021), a special needs trust, overseen by a trustee, allows the beneficiary to maintain eligibility for these benefits while utilizing trust assets for life-enriching items such as furniture, a TV, a vacation, and other luxuries not covered by government assistance.

In the absence of a trust, an individual would be required to deplete all countable assets to requalify for Medicaid and SSI. However, this approach contradicts the intent of passing on resources to the individual, as they would exhaust their assets on daily living and medical costs—expenses typically covered by the government benefits discussed.

Once a special needs trust is established, collaboration with your attorney becomes essential to share this critical information with family and friends considering leaving assets to your family member with a disability. Coordinating beneficiary designations is of utmost importance to avoid any unintentional disqualification of your loved one from these essential benefits.

When to consider planning for your child

The reality is that the optimal time to start planning is as early as possible. However, it's crucial to understand that it's never too late to embark on this journey. As mentioned earlier, your loved one could become eligible for benefits before reaching the age of 18 in the unfortunate event of your passing but leaving them assets might inadvertently disqualify them from these benefits.

Consideration should also be given to the selection of assets within your financial plan that make the most sense for passing on to your loved one. Life insurance is often a prudent choice for various reasons, particularly as premiums tend to increase with age.

What additional factors warrant your consideration?

Letter of Intent

A crucial document for families with a loved one with a disability is the Letter of Intent. Although it is not a legally binding document, its importance cannot be overstated, especially in preparation for unforeseen events. This letter serves as a comprehensive guide to the daily life of your loved one with a disability. It should encompass details such as their medical practitioners, medications, daily schedule, extracurricular activities, emergency contacts, the contact information of their county supports coordinator, and more. Imagine the information you would leave for someone watching over your loved one for a night, and now prepare for the possibility of not returning home.

529 ABLE Accounts

In December 2014, President Obama enacted the Achieving a Better Life Experience, or ABLE, Act into law. This legislation enables individuals with disabilities to accumulate savings of up to $100,000, with the flexibility to invest these assets. Upon reaching the $100,000 threshold, an ABLE account transitions into a countable resource, potentially impacting the beneficiary's eligibility for government benefits (Ordp, O., n.d.).

Connect with our team

To gain a more in-depth understanding of financial planning for families with loved ones with disabilities, explore our podcast, Maximizing Outcomes, at https://maximizing-outcomes.blubrry.net/. For specific inquiries, don't hesitate to contact our team directly by emailing Ryan Wirth at [email protected] and mentioning this informative blog post.

Jim McGovern

Jim McGovern, CFP®, ChFC®, CExP®, is the Founder of McGovern Wealth Group at Lifetime Financial Growth, LLC, boasting over two decades of financial experience. Specializing in comprehensive financial strategies, Jim serves individuals, families, business owners, and families with loved ones with disabilities, showcasing his commitment to excellence through extensive designations and a passion for innovative wealth management solutions.

Ryan Wirth
Ryan Wirth, a dedicated Wealth Management Advisor at McGovern Group, specializes in planning and business development to guide individuals and businesses towards financial success. With a background in non-profit work, particularly with individuals with disabilities, Ryan joined McGovern Wealth Group in 2021, bringing a personal touch to holistic financial solutions.

Centers for Medicare & Medicaid Services. (n.d.-a). Financial management. Medicaid. https://www.medicaid.gov/medicaid/financial-management/index.html

Centers for Medicare & Medicaid Services. (n.d.-b). Medicaid. https://www.medicaid.gov/medicaid/index.html

KFF. (2023, June). Medicaid in Pennsylvania. Fact-Sheet-Medicaid-State-PA. https://files.kff.org/attachment/fact-sheet-medicaid-state-PA

Medicaid and CHIP Payment and Access Commission. (2021, March 18). People with disabilities. MACPAC. https://www.macpac.gov/subtopic/people-with-disabilities/

Ordp, O. (n.d.). Spotlight on Achieving a Better Life Experience (ABLE) Accounts - 2023 Edition. Social Security Administration. https://www.ssa.gov/ssi/spotlights/spot-able.html?tl=3%2C6

Policy basics: Supplemental security income. Center on Budget and Policy Priorities. (n.d.). https://www.cbpp.org/research/social-security/policy-basics-introduction-to-supplemental-security-income

Urbatsch, K. (2021). Special needs trusts 2021: Protect your child’s financial future. Nolo.

Material discussed is meant for general informational purposes only and is not to be construed as tax, legal, or investment advice. Although the information has been gathered from sources believed to be reliable, please note that individual situations can vary. Therefore, the information should be relied upon only when coordinated with individual professional advice.

Ryan J. Wirth and James P. McGovern are Registered Representatives and Financial Advisors of Park Avenue Securities LLC (PAS). OSJ: 244 Boulevard of the Allies; Pittsburgh, PA 15222. Phone: (412) 391-6700. Securities products and advisory services offered through PAS, member FINRA, SIPC. Mr. Wirth and Mr. McGovern are also Financial Representatives of The Guardian Life Insurance Company of America® (Guardian), New York, NY. PAS is a wholly owned subsidiary of Guardian. McGovern Wealth Group and Lifetime Financial Growth are not affiliates or subsidiaries of PAS or Guardian. Mr. Wirth’s AR Insurance License ID #19895128 & CA Insurance License ID #4198743. Mr. McGovern’s AR Insurance License ID #7119103 & CA Insurance License ID #0F67329. 2024-168679 Exp. 02/26