Providing for “special needs” beneficiaries

18 Apr, 2019//Posted by : admin//Category : Uncategorized

Many parents and other Trustors want to provide for beneficiaries that have disabilities severe enough to qualify them for “public assistance” benefits. This type of government entitlements are given to those who are unable to work, or otherwise function in the economy. The most common benefits we see in our practice consist of Medi-Cal health insurance, which is the California version of the federal Medic-Aid health insurance, and what is known as SSI. This Supplemental Security Income is a form of federal government payment that provides a straight income subsidy to qualified persons in the form of monthly payments. There are other government programs for disabled residents, but those are the most common.
There is a lot of confusion about what these programs are, or how one becomes qualified for them. Many people think that Supplemental Security Income is the same as the Social Security Disability benefit. The confusion is understandable, because both programs are administered by the Social Security Administration, and the medical test to qualify for either program are identical. The primary difference of SSD from SSI is whether the beneficiary has qualified through their earnings history for early retirement on Social Security. If they have sufficient earnings quarters in the SS system, and meet the disability test, they may receive the same, or 100% of their earned Social Security payment, as if they had retired at 66, or whatever the normal retirement age is for their generation. Supplemental Security Income has much lower payments, and the recipient must not only qualify as disabled, they must be at, or near, poverty level in terms of assets and income.
The confusion with Medi-Cal seems to be that the name of this state assistance is so close to MediCare, which is a health benefit, also for retired persons, also administered through the Social Security system. Medi-Cal, however, is not a Social Security benefit. It is a combined federal and state program to provide health coverage for indigent, uninsured, people.
The need for “special needs” planning occurs when estate planning counsel encounter clients who wish to provide assistance to heirs that are qualified for SSI, Medi-Cal, or both. Since eligibility for both of these programs, and others, are “needs based” on whether the prospective beneficiary is in financial need, careful drafting of the trust provisions for them is required. If a public assisted beneficiary receives any sizable inheritance, they will become disqualified for such public assistance, and will remain so until they spend down their inheritance so they are back at poverty level.
Financial aid and provisions for such beneficiaries can be made through what is referred to a “special needs” trust. In these trusts, a fiduciary is appointed to make payments or distribution for whatever “special needs” the beneficiary has, and contemplated as over and above what is provided by public assistance. For example, a house can be purchased for the beneficiary, and other consumer items like televisions, furniture, appliances can be purchased to help them function. There are very strict rules against the special needs trustee just handing over cash or payments to the beneficiary, and there can be no entitlement by the beneficiary to any such regular income from the trust. The special needs assistance can not be a regular income stream or distribution that they are entitled to receive from the trust. Therefore, the special needs trustee must be schooled and knowledgeable about the rules.
Another form of trust that use for financially impaired or somewhat irresponsible beneficiaries is a “spendthrift” trust. This will be the subject of further blogs, but the main purpose of these, as the name implies, is to keep the beneficiary on a tight leash by giving a trustee the discretion on spending and distribution.