Questions and Answers for Disability and Special Needs

Disability is defined at 42 U.S.C. § 1382c(a)(3).  The definition of disabled is extensive and complicated.  Basically, an individual is defined as disabled if “he is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than twelve month.”   The statute requires that the physical or mental impairment be so severe that not only can the individual not do his/her previous work but “cannot, considering his age, education, and work experience, engage in any other kind of substantial gainful work which exists in the national economy.”

Disability can be closer to you than you think.  A 20 year old worker has a 3 in 10 chance of becoming disabled before reaching the age of retirement.

Social Security Disability Income (SSDI): A federal assistance program for disabled people who have paid Social Security taxes or are dependents of people who have paid.

In order to qualify for this benefit, the disabled individual needs to have earned enough credits to become “insured,” be a disabled widow or widower, or be a disabled child over the age of 18 with a parent who receives social security benefits or is deceased and who had paid enough into social security before his or her death.  The chart varies depending on the age of the disabled, however, the general rule is that the disabled must have earned 40 credits, and 20 of which were earned in the last 10 years immediately predeceasing the disability.

In addition, the disabled must prove his inability to earn a living by going through a five step process:  (1) the disabled must earn less than $980 per month, (2) the condition must be severe, (3) the condition must be in the list of medical conditions, (4) the condition needs to interfere with the ability to work, and (5) the disabled cannot adjust to other work.  The list of medical conditions for minors includes cerebral palsy, autism, Fragile X syndrome, Down syndrome, mental impairment, and more.

Supplemental Security Income (SSI).  SSI provides money for such basic needs as food, clothing, and shelter for people 65 years or older, or blind or disabled.  To qualify for this benefit, the individual must earn very little income and have less than $2,000 of resources.  The individual may receive a maximum monthly SSI benefit of $674.

Medicare.  Medicare is a federal program for people ages 65 and older, certain young people with disabilities, and people with kidney problems requiring dialysis or a kidney transplant.  Medicare coverage is also available to people who have been entitled to Social Security disability benefits for 24 months and to certain government employees.

Medicaid.  Medicaid is a federal and state program for the aged, blind, and disabled who meet certain eligibility requirements and who are indigent.  In addition to paying for medical services, Medicaid pays for a host of ancillary services that are essential for special needs children.

1. Providing for all of their loved ones without jeopardizing the special needs child’s current (or potential) eligibility for means-tested government benefits such as SSI and Medicaid;
2. Designing an estate plan that supplements the special needs child’s means-tested government benefits, and enhances the quality of the special needs child’s life;
3. Treating the other children equitably while providing for the special needs child;
4. Making sure sufficient funds are available at a parent’s death to care for the special needs child; and
5. Providing for the proper supervision, management, and distribution of an inheritance for the special needs child through a third-party created and funded special needs trust (SNT).

Parents are the natural guardians of the minor special needs child. A legal guardian does not need to be appointed guardian until the disabled reaches 18 years of age.  At 18 years of age, the disabled person might need various levels of care depending on the disability. The legal guardian does not necessarily have to be one or both parents. Any person 18 years of age or older may act as a guardian. A petition for guardianship can be started 6 months before the child turns 18.

Parents will have to advocate for their child to teachers and school administration.  Often an Individual Education Plan (“IEP”) or Section 504 plan will be created for the child.  Before the meeting, parents should learn as much as they can about how their child is functioning and what he/she needs.  Parents should understand the difference between goals and objectives on IEPs and what is realistic and measurable.  Finally, parents should be knowledgeable on accommodations and services that the child needs and what may be available from the school before attending the meeting.  The parents should bring a wish list and not just wait for the school’s proposals.  All promises should be documented in the plan, because if they are not written down, they are not enforceable.  Parents can be assisted by an education consultant or by an attorney (1)

Parents should keep a detailed report and update it often to provide detailed information on the routine of the disabled, the tips for enhancing communication, what the child likes to do, as well as contact information of health care providers and doctors.

When the special needs child reaches 18 years of age, steps need to be taken in order to care for the child.  If the young adult has some degree of capacity, he/she can execute a HIPAA release and an Advance Medical Directive.  When the young adult cannot execute these documents, a petition for guardianship should be sought.  This petition can be started 6 months before the child turns 18.

(1) A Guide to Special Education Advocacy, by Matthew Cohen.

A Conservator is a person appointed by a judge to protect and manage the financial affairs.

A petition for conservatorship is not always necessary.  If the young adult’s only source of income is SSI, then the parents can be named representative payee by the Social Security Administration.  If the young adult has some sort of capacity, which is presumed unless determined incapacitated by a Court, the execution of a power of attorney may be sufficient.  It is recommended to include a power for educational matters in order to reinforce the power of the parents when dealing with the teachers and school administrators.  In other situations, the parents will have to petition the court to be appointed conservator of the estate of the young disabled adult.

Special Needs Trusts (SNT), also known as supplement needs trusts, are trusts that are used primarily to supplement, but not replace, any benefits that the beneficiary may receive. The Omnibus Budget Reconciliation Act (OBRA’93) codifies several forms of SNTs that were created through previous case law.  There are 3 kinds of SNTs: (1) Self Settled Trusts (d4A Trusts), (2) Third Party Trusts, and (3) Pooled Trusts (d4C trusts).

The Self Settled Trust, also called (d)(4)(A) disability trust, payback trust or “first party SNT” has the following requirements:

i.  The trust shall be funded with the assets of the individual with a disability,

ii.  The trust is established for the sole benefit of the disabled,

iii.  The disabled is under 65 when the SNT is funded,

iv.  The individual is disabled as defined in 42 U.S.C. § 1382c(a)(3),

v.  The SNT is established by a parent, grandparent, legal guardian, or court (the disabled may not establish his/her own SNT),

vi.  The trust must include a payback provision that will reimburse the state Medicaid agency up to the amount of any cost paid on behalf of the disabled individual from the principal and accumulated interest remaining in trust at the beneficiary’s death.

vii.  Statutory liens must be paid before the trust can be funded.

Typically these trusts are funded with personal injury settlement or an inheritance.

This trust is created by a donor who wants to set money aside, or bequeath a gift in a will or trust, without disrupting the beneficiary’s eligibility for public benefits.  The main goal is to ensure that the beneficiary will not lose his/her current or future public benefits.  Public benefits give psychological independence to the disabled in addition to financial support and access to medical care.

Basically, the trustee will have complete discretion in making distributions to or for the benefit of the special needs child.  Most payment should be third party payment in order for the disabled to not lose his/her benefits. The trust should have provisions to amend and reform the trust in order to adjust to certain government benefit requirements. These trusts can be stand alone trusts created during the life time of the donor or under the Last Will and Testament or Trust of the donor.  However, the donor may not make a sufficient gift for creating an economical SNT.  In this case, a pooled trust may be solution.

A pooled trust is a self-settled trust that is funded with the assets of the individual.  A pooled trust will be exempted as a resource and will not be subject to a transfer penalty if it meets these statutory requirements:

i.          It is funded with the assets of an individual with a disability.

ii.          The trust is established and maintained by a non-profit association.

iii.          A separate account is maintained for each beneficiary of the trust.  However, for investment and management purposes, the trust funds may be pooled into one account.

iv.          The trust account is established by the parent, grandparent, legal guardian of the individual, a court, or by the individual.

v.          To the extent that any funds remaining at death are not retained by the trust, the state must be reimbursed for the amount of medical assistance advanced to the individual.

The selection of the trustee is very important because of the degree of discretion.  The settlor of the trust should consider the following: (1) The trustee’s ability  to understand and respond to the needs of the beneficiary; (2) the trustee’s knowledge of government benefit programs and the effect that trust distributions will have on the government benefits; (3)  the trustee’s health, integrity, reliability, and financial acumen; (4) the trustee’s potential for conflict of interest if the trustee is a current or remainder beneficiary of the trust; (5) the potential for adverse income and transfer tax consequences if a family members serves as a trustee and is also a current or remainder beneficiary of the trust.