As a financial advisor, your expertise and guidance are pivotal for families with special needs or those receiving SSI and Medicaid benefits. By honing your understanding of special needs planning, you can provide invaluable guidance to your clients and help them navigate a path that not only secures their financial future, but also preserves the necessary resources for their loved ones.

Government Benefits and Estate Planning

The first step in assisting your clients effectively is knowing the nuances of government assistance programs. SSI, for instance, is a federal income supplement program designed for elderly, blind, or disabled people who have limited income and resources. Medicaid, on the other hand, provides health coverage to people with low income, including some low-income adults, children, pregnant women, elderly adults, and people with disabilities. Eligibility for both programs hinges on income and resource limits. Let's take a look at the eligibility requirements for both programs.

Supplemental Security Income (SSI)

For SSI, the income limit for an eligible individual is $914 per month and $1,371 per month for an eligible couple (as of 2023). However, not all income is countable, and so a client can earn more than this and still qualify for SSI. SSI deems certain types of income as non-countable, such as the first $20 of most types of income received in a month, or the first $65 of earnings and half of earnings over $65 received in a month.

The resource limit for SSI is $2,000 for an individual and $3,000 for a couple. Resources include things like bank accounts, cash, stocks, bonds, land, vehicles, personal property, life insurance, and anything else you own which could potentially be converted to cash and used for food or shelter.

Medicaid

Medicaid limits can vary greatly by state, as states have significant flexibility in setting the rules. Typically, Medicaid limits are set according to the Federal Poverty Level (FPL). As of 2023, for many states, the income limit for individuals to qualify for Medicaid is 138% of the FPL, which is approximately $20,120 for an individual and $34,306 for a family of four.

Some states may have different rules, including income limits for elderly, blind, or disabled individuals that are separate from the rest of the population. There may also be "spend-down" programs in certain states that allow individuals with income above the standard Medicaid limit to qualify if they have high medical expenses.

Special Needs Trust

A Special Needs Trust (SNT), also known as a Supplemental Needs Trust, is a specific kind of legal instrument designed to benefit individuals who have disabilities. By setting up an SNT, families can provide financial support for their loved ones with special needs without jeopardizing their eligibility for important government programs like Medicaid and Supplemental Security Income (SSI).

Preservation of Benefits

The central function of an SNT is to hold assets for a person with special needs, ensuring that these assets are not directly controlled by the beneficiary and thus, aren't counted when determining eligibility for government aid programs. As noted above, there are strict income and resource limits for a beneficiary to qualify for Medicaid and SSI. If these limits are exceeded due to an inheritance or any other reason, the beneficiary could lose access to these important benefits.

The funds held in an SNT aren't considered to belong to the beneficiary in the eyes of these programs because they are under the control of a trustee. This allows the beneficiary to maintain their eligibility for assistance programs, while still having access to additional resources to enhance their quality of life.

Trustee Control

An SNT is managed by a trustee, who has the discretion to disburse funds for the benefit of the person with special needs. The beneficiary does not have direct access to the trust; instead, the trustee uses the trust resources to pay for various expenses on their behalf.

Importantly, the trustee must carefully disburse funds in a way that does not interfere with the beneficiary's eligibility for government benefits. Generally, trust funds should not be used for food or shelter expenses, as these are considered Income for Support and Maintenance (ISM), and could reduce SSI benefits. Instead, trust funds are typically used for supplemental needs beyond what government programs cover, like recreational activities, non-covered medical expenses, home modifications, or personal care assistance.

Types of Special Needs Trusts

There are three primary types of SNTs:

  1. First-Party SNT: Funded with the beneficiary's own assets, such as an inheritance or a legal settlement. Upon the beneficiary's death, the state is reimbursed from any remaining trust assets up to the amount that Medicaid has provided for the beneficiary.
  2. Third-Party SNT: Funded with assets from someone other than the beneficiary, typically parents or other family members. There is no requirement to reimburse the state upon the beneficiary's death.
  3. Pooled Trust: Run by non-profit organizations, pooled trusts combine the resources of many beneficiaries, while maintaining separate accounts for each individual. These trusts can be useful for those who don't have a suitable trustee available, or whose resources wouldn't warrant the establishment of a standalone trust.

As of this writing, GoGo Estate only offers Third-Party SNT's. In fact, every GoGo Estate Trust Plan includes language for the creation of a Third-Party SNT in the event that a beneficiary is receiving Medicaid or SSI. We anticipate providing your clients with First-Party SNTs at some point in the future.

ABLE Accounts and Special Needs Estate Planning

In 2014, Congress passed the Achieving a Better Life Experience Act (the "ABLE" Act). This significant piece of legislation created more opportunities for individuals with disabilities to save for the future without jeopardizing their access to vital government assistance programs.

The ABLE Act allows individuals with disabilities and their families to establish tax-advantage savings accounts, known as "ABLE accounts." These accounts are similar to 529 college savings plans and aim to help individuals with disabilities accumulate savings to cover qualified disability expenses.

Who is Eligible for an ABLE Account?

Eligibility for ABLE accounts is limited to individuals with significant disabilities with an age of onset of disability before turning 26 years of age. If one of your client's children meets this age criteria and are also receiving benefits already under SSI and/or SSDI, they are automatically eligible to establish an ABLE account. If they are not a recipient of these benefits but still meet the age of onset disability requirement, they could still be eligible to open an ABLE account if they meet Social Security's definition and criteria regarding significant functional limitations.

How Do ABLE Accounts Work?

ABLE accounts can receive contributions from any person, such as family and friends, using post-taxed dollars. The total annual contributions by all participating individuals, including family and friends, for a single tax year is $17,000 (as of 2023). The amount may be adjusted periodically to account for inflation.

One of the key benefits of an ABLE account is that it can grow tax-free. Withdrawals, including the earnings portion, are tax-free as long as they are used for qualified disability expenses. These include, but are not limited to, expenses related to education, housing, transportation, employment training and support, assistive technology, personal support services, health care expenses, financial management, and administrative services.

Impact on SSI and Medicaid

One of the most significant benefits of the ABLE Act is the impact it has on SSI and Medicaid eligibility. Usually, an individual can lose SSI eligibility if they have over $2,000 in resources ($3,000 for a couple). However, with an ABLE account, an individual with a disability can maintain up to $100,000 in their account without it counting towards the SSI resource limit.

For Medicaid, the ABLE Act stipulates that individuals will not lose eligibility based on the assets held in their ABLE accounts, regardless of the balance. Also, after the beneficiary's death, Medicaid payback provisions allow states to recover certain benefits paid on behalf of the beneficiary from the ABLE account, but only after all outstanding eligible expenses have been paid.

Conclusion

In conclusion, estate planning for families with special needs or those receiving government assistance requires nuanced understanding and a unique approach. But with careful planning, you can ensure your clients not only leave a lasting legacy for their loved ones but also protect the valuable assistance their families need. It is about securing the present while safeguarding the future—a goal that underpins the very essence of our role as financial advisors.