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July 12, 2013

Bequest for disabled child may cancel benefits

Inevitably, parents of a severely disabled adult child are faced with decisions on how to insure the welfare of their loved one when they are no longer here.

While the disabled individual is often eligible for governmental benefits to help with medical care, such as Social Security Income, Medicare, or Medicaid (MassHealth), many of those programs are need-based. That means that the individual has to meet certain income guidelines to qualify. So, when parents are completing their estate planning, they need to take into consideration how the receipt of an inheritance might affect those benefits.

If a child inherits or receives money, they can be disqualified from public benefits, which impose upon them a lifestyle of utter poverty because of the rules governing those asset-based programs. So, how can a parent insure that they are able to help their special needs child to have basic needs met, but also have a decent quality of life?

While Social Security and MassHealth are designed to pay for food, shelter, and medical care, little provision is made for so called “supplemental needs” and individuals are limited to $2,000 in assets, which does not allow much to cover everything else. Parents can investigate setting up a “special needs trust” (SNT) to pay for such supplemental needs, which include things other than what is provided by public benefits. A SNT can be used to pay for clothing, furniture, computers, and other household items for their loved one without threatening the benefits for their long-term maintenance.

The Omnibus Budget and Reconciliation Act of 1993 (OBRA-93) requires that a payback be made to Medicaid, but a SNT funded by parents may be exempt.

The law that authorizes Supplemental Needs Trusts says that a parent, grandparent, or guardian is authorized to establish the SNT. Most states have established that siblings or caregivers can institute these trusts, but because it can seriously impact a person’s access to government benefits that are needed for lifelong care, prudence dictates getting good professional advice. Not all elder law attorneys are familiar with this aspect of care planning, so it’s best to ask.

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