Estate planning is critical for families with disabled children. These families have the added responsibility of navigating the world of special education, government benefits, and how these services intersect. A critical piece of the puzzle is understanding how an “accidental” inheritance could jeopardize the child’s eligibility for these benefits and how some thoughtful estate planning can protect that eligibility into the future.
Individuals with disabilities are entitled to receive supplemental security income (SSI) benefits from the federal government and additional state-sponsored benefits in Massachusetts through the State Supplemental Program (SSP). Social Security administers SSI which pays monthly benefits to people with limited income and resources who are disabled, blind, or age 65 or older. Blind or disabled children may also get SSI. (https://www.ssa.gov/ssi/text-over-ussi.htm) In order to qualify for SSI, the disabled individual must meet an asset threshold of $2,000 or less. Inheriting assets can easily cause the individual to become disqualified and lose their SSI benefits.
Sometimes, accidental inheritances passing directly to the disabled individual can cause that person to lose eligibility because their assets then exceed the asset threshold. One type of inheritance that can disqualify disabled individuals from their benefits is an outright distribution from a family member's estate plan. For example, a grandparent may leave a outright gift from their will or trust to each of their grandchildren at death. These assets are then countable as belonging to the disabled individual for SSI purposes. Another type of inheritance is through intestacy. This happens when the parent (or another family member) of a disabled individual passes away without an estate plan and by operation of law the assets pass to the disabled child, resulting in a disqualification from benefits. This happens frequently when the parent is unmarried at their death.
When these accidental inheritances occur, it is critical to take the necessary steps to ensure that the assets do not become countable for SSI purposes. The most efficient way of doing so is by implementing a d(4)(a) Trust, also known as a First Party Supplemental Needs Trust (“First Party SNT”). This type of trust is established so that a Trustee can manage the inherited assets for the benefit of the disabled beneficiary without those assets being considered an asset of the individual, thus maintaining eligibility. The Trustee can make discretionary distributions to meet the needs of the disabled individual that are not otherwise being met by government benefits. One drawback to the First Party SNT is that at the death of the beneficiary, the government has a right to recover any funds paid out on behalf of the beneficiary from any remaining trust assets. In most cases, this means that anything remaining in the trust must be paid back to the Social Security Administration and/or MassHealth. Another drawback is that a First Party SNT must be established immediately upon receipt of assets to avoid any interruption in benefits.
One way to avoid this common scenario is for parents to establish a Third Party Supplemental Needs Trust (“Third Party SNT”) on behalf of their disabled child. This type of trust can be named as a beneficiary of another person’s estate plan, thereby avoiding giving assets directly to the disabled individual and risking disqualification. A Third Party SNT can also receive lifetime gifts in addition to inheritances, acting as a tax planning technique for individuals looking to reduce their taxable estates at death. Furthermore, SSI and MassHealth have no claim to any assets remaining in a Third Party SNT at the death of the beneficiary, allowing parents to direct the payment of any remaining assets to other family members, charitable organizations, or whomever they choose.
If you have a child with a disability who is at risk of losing his or her eligibility for government benefits because of a future inheritance from you or anyone else, contact Mulhall Withrow, PLLC to schedule a conference to discuss the best options for your family.