Providing money to disabled may jeopardize their benefits
It has been estimated one in every 26 families is raising a child with a disability. In the past 10 years, the number of U.S. students enrolled in special education programs has increased 30 percent.
The number of seniors dealing with Alzheimer’s and other disabling illnesses put many families at risk. Families want to find a way to help without losing government benefits.
While the parents are alive, there is usually a support system. Once the parents are gone, something has to replace this financial resource. Grandparents and others can jeopardize these government benefits if they leave their disabled family members money in their will. This problem is getting bigger as more people are diagnosed with these conditions and the disabled are living longer due to improvements in medical care.
Government programs are means tested to see whether an individual qualifies. If a disabled person has less than $2,000 in his or her name, that individual may qualify for Social Security Supplemental Security Income (SSI). This helps pay some basic living expenses. A person who qualifies for SSI will often qualify for Medicaid.
If someone leaves these disabled citizens more money than this low level, the recipients could lose these necessary government benefits.
This is why great care is necessary in your financial planning. Often, a special needs trust is used to meet this situation.
The trust is usually created and funded by a third party, such as a parent or grandparent. Sometimes the funding mechanism is a life insurance policy.
It is important a disabled person does not fund or control the trust. An independent trustee oversees the trust for benefit of the disabled person. The trust usually has a spendthrift provision to protect trust income and assets from the claims of the disabled beneficiary’s creditors.
The trust is to meet needs that government benefits do not cover, which would enrich the life of the disabled. Those needs could include going to a special camp, using specially equipped vans, modifications to a home and special therapeutic programs.
It is important that an attorney who specializes in this area helps you create the proper legal documents and helps you stay in compliance with any rule changes.
Recently, we have been seeing television ads for a new state program being run by the Pennsylvania treasurer’s office. It is a tax-free savings plan for people with physical and intellectual disabilities. It is for people with severe disabilities diagnosed before age 26.
The ABLE law could allow people to contribute up to $14,000 per year and up to $100,000 overall before losing SSI. The money can be used for a number of things, including housing, support services and funeral expense.
To learn more about this new program, visit PAABLE.gov.
Gary Boatman is a Monessen-based certified financial planner and author of “Your Financial Compass: Safe passage through the turbulent waters of taxes, income planning and market volatility.”
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