Caring for a person with a developmental disability includes far more than just paying for therapy. With lifelong needs at play, caregivers must consider who will one day fill their shoes and how.

In this installment of Scoop Essentials, we tackle government benefits, special needs trusts, conservatorships, taxes and more with attorney Diedre Wachbrit who is a co-founder of the Academy of Special Needs Planners.

Check out what Wachbrit has to say and then click here to submit your own questions to her.

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Disability Scoop: What legal and financial considerations should caregivers of individuals with disabilities be thinking about?

Diedre Wachbrit: They need to take a good hard look at what they are doing now and how that is going to continue when they can no longer do it. Second of all, they really need to audit the benefits the person is receiving to make sure they’re not missing anything that could potentially make a big difference in their life and the life of the person with special needs.

Disability Scoop: Can you give us some examples of the types of benefits you’re referring to?

Diedre Wachbrit: In terms of benefits they should be looking at Supplemental Security Income (SSI), Old Age, Survivors and Disability Insurance (OASDI), which is also sometimes called Social Security Disability Insurance (SSDI). Those are actually two separate programs, but sometimes people get them confused. Also look at Medicaid, which is called different things in different states. Look at Medicare too.

Disability Scoop: When you talk about these different programs, are these benefits you can qualify for at any age or do you have to reach a certain age to qualify?

Diedre Wachbrit: If it is a minor child, someone under 18, and they are living with parents, their parents’ income will be what’s called “deemed” to them or attributed to them so that they’ll probably fail any income test for these types of programs if they have working parents. So a lot of these programs become effectively available when a person turns 18 and no longer has their parents’ income deemed to them. Also, you can only get Medicare if you have received Social Security for two years.

Disability Scoop: Can you talk about the restrictions that go along with certain benefits?

Diedre Wachbrit: People need to know that there is a basic asset test. You can only have $2,000. There are some exceptions to what is counted in that $2,000. The most important two exceptions are: one, you can own the house that you live in. And you can own up to $2,000 in personal property as well. But, those items are counted at fair market value or garage sale type values. So, you can have a computer, a TV and a DVD player and all of those things that might cost more than $2,000 if you buy them new, but really if you had a garage sale would not be nearly as expensive. You can also have term insurance or whole insurance of up to $1,500 and a burial plot.

The second part of the test is your income. What you have to do in order to qualify for SSI — which is the most common program that people with disabilities seek out and qualify for — is you have to look at what your state’s SSI benefit is. In California, it’s about $900 but it may be as little as $600, depending on the standard of living for the particular state. Then you have to deduct from that all of your income with certain caps.

Take all of your income and categorize it into unearned income, which are things like interest on your savings account, rent a roommate might pay you, gifts that anyone gives you and any inheritance that you’ve received. For every dollar of unearned income, you lose a dollar of SSI. You could lose your Medicaid as well as a result.

The second category of income is in kind support and maintenance. An example would be when somebody else is buying stuff for you. So if somebody is paying your rent or taking you to the grocery store, they can buy you any amount of stuff and you can only lose a max of one third of the federal benefit, so about $220 per month even if they’re spending $10,000 on you. You deduct this from your SSI payment.

The third kind of income is earned income. It varies by state, but in California you can make $80 before they deduct anything from your check. Everything above $80, they deduct 50 cents on the dollar.

Once you’ve deducted all three kinds of income and still have at least one dollar of SSI remaining, you receive full Medicaid benefits for that month. That’s true in every state.

There is a little nuisance, if you lose all of your SSI because you receive too much OASDI or too much SSDI, you will not lose your Medicaid.

Disability Scoop: And those two programs are things that you would get if your parent died, right?

Diedre Wachbrit: SSDI is what you would get based on your own work record. If you paid in 40 quarters and then had a traumatic brain injury, for example, you would receive SSDI. If your parent put in 40 quarters, you would receive an amount equal to half of their benefit amount when they retire or if they are disabled you would receive three quarters of their benefit amount when they die.

Disability Scoop: Do people need to consider guardianship or conservatorship?

Diedre Wachbrit: If it’s a non-parent caregiver, they need guardianship to make medical decisions and to advocate for the child in school.

For a parent or non-parent of someone who is over 18, a conservatorship is worth considering. Some states call it a guardianship whether you’re under or over 18. In most states people can apply for conservatorship or guardianship when the person they’re caring for is age 17 and a half. That way, when the person turns 18, they’re not left legally adrift.

If a person is purely physically disabled, a guardianship or conservatorship is not appropriate. For people who are cognitively impaired and unable to make medical decisions and negotiate living arrangements for themselves, only a conservator can do this for them. So a conservatorship is definitely something people should look at if there is any cognitive impairment or developmental delay.

Disability Scoop: If you have conservatorship over an adult with special needs and you become incapacitated or you die, what happens to that conservatorship?

Diedre Wachbrit: The court has to appoint the next conservator. So each conservator should complete a nomination of conservator. You wouldn’t file it with the court, but the next person who you name would file it when they file their petition. They would say, I am a nominee of a person who is entitled to conservatorship letters. The court views that more favorably.

Disability Scoop: If you are a conservator for an adult, does your income impact their eligibility for benefits or are you considered separate for that purpose?

Diedre Wachbrit: You are still considered completely separate. The only difference is that now you’re allowed to officially talk to the Social Security Administration, the school board and other government agencies about benefits.

Disability Scoop: What is a special needs trust? How can people set one up and what does it cost?

Diedre Wachbrit: It’s a trust with a trustee that generally inherits money form the parents when the parents die. The money in this type of trust isn’t counted towards that $2,000 asset maximum that I discussed earlier.

The way the trust works is that the trustee buys things for you, which is considered “in-kind support and maintenance.” So the trustee of the special needs can buy you any amount of goods and services. As long as the money does not go through he beneficiary’s hands, you don’t lose more than $220 in SSI.

If a parent didn’t create a plan and the child inherited an equal share of the estate with the other siblings, that child would have more than $2,000 and would be kicked off all their government programs until they spend their inheritance down to $2,000. So the special needs trust allows the child to get all those extra things that give you quality of life. If you only receive $600 or $900 per month, it’s not enough money to live on in most places. The special needs trust comes to the rescue just like parents do when they’re alive.

Within the special needs trust world there are many choices. You can join an existing special needs trust called a “pool trust” for about $2,500 or you can create a very custom special needs trust for about $3,500. These fees vary, but I’m giving you California average fees. You’ll find some attorneys who are more like general practitioners charge about $500 to set up a special needs trust. However, trusts created by attorneys who don’t specialize in special needs trusts may not hold up to preserve benefits.

Disability Scoop: Are there alternatives to a special needs trust?

Diedre Wachbrit: There really are no good alternatives. Some people disinherit their child with special needs, but then the child has nothing. Some people leave money to a sibling and count on that sibling to provide for the child with special needs. But what if the sibling loses half of the money in a divorce? Or what if that sibling happens to die before the child with the special needs? What if they get sued? What if they have octuplets and decide they really need that money more than their sibling does? There are alternatives, but they are bad ones.

Disability Scoop: When should people set up a special needs trust?

Diedre Wachbrit: I recommend people set up special needs trust as soon as they know their child has a disability. It’s just like estate planning in that you don’t know when it’s going to be needed. While it would be nice to believe in counting on not needing it until your child is at least 18, you really don’t know.

If you see an attorney who focuses on special needs trusts, that attorney can write a lot of flexibility in so that you can address various situations. What if my child grows out of it? What if the doctors are wrong and it just turns out to be developmental delay? You can put that kind of flexibility in so that you can create a special needs trust very early on.

Disability Scoop: Can a special needs trust begin payments to a beneficiary while caregivers are still alive or is this type of trust set up primarily to help after caregivers are gone?

Diedre Wachbrit: I recommend setting one up that’s in place as soon as you sign it. It’s usually a separate document from the rest of your estate planning so that it can exist right now. If it’s with your will or within your trust, it doesn’t actually exist until you die. Also, this way it can receive contributions from other family members like grandparents and aunts and uncles while the parents are still alive.

There’s no reason for the parents to put money into the special needs trust before they die unless they need to gift money for estate tax or Medicaid planning or unless they need to reduce their own estate for some reason. That’s because parents are almost like special needs trusts already. They can spend money for the child and it is considered in-kind support and maintenance. The problem when they’re gone is that you’ve got this inheritance.

Parents could be the trustees while they’re alive. So if grandma left $100,000 to the special needs trust and it was structured so that the parents are trustees, they could then spend money from other contributions to the trust.

Disability Scoop: What types of things can a special needs trust pay for?

Diedre Wachbrit: In some states the special needs trust has to say that the trust can only supplement, but not supplant the public benefit and it those states the trust can probably not be used for food and shelter or medical care. But in many states the trustee can spend whatever the trustee deems to be in the beneficiary’s best interest, so it depends on your state. If your child is going to move to another state after you’re gone to be with a guardian or a family member, you want to take that into account in your special needs trust planning.

Disability Scoop: What should parents or caregivers look for in selecting a trustee to administer their child’s special needs trust?

Diedre Wachbrit: What you need in a trustee is someone who is going to keep perfect records because they need to render an accounting every year and they need to be able to defend any audits by government agencies.

But most of all you need somebody who has a ton of integrity. Trustees can and have gotten away with a lot of shenanigans and bad behavior before they’re caught. If this happens and you don’t have a bank with deep pockets, your beneficiary may never be put back in the same position they would have been in if the trustee had not done those bad things. So integrity is number one. Detail oriented is number two. Number three I would say is a real passion for acting in your child’s best interest. The trustee is going to have to make a lot of difficult decisions or may have to. You want them to be comfortable enough and know your child well enough to make those kinds of decisions.

If you have a person like that in your family, congratulations. You may want to name that person as trustee. If you don’t, and a lot of people don’t, then a corporate trustee is a good choice.

Some banks have trust departments that are dedicated to special needs. These institutions can obtain discounts on durable medical equipment because they buy in bulk. They professionally invest the money and charge a flat fee of usually 1 percent to 1.5 percent of the total assets per year to manage the trust. What’s great about banks serving as trustees is that they’re immortal. On the flip side, the family member that you name as trustee may not outlive your child. So you may say, first I want to name my sister and then her husband and then I want to name a bank. When your sister and her husband are gone, there is still a trustee there to act. If you run out on our list you have to go to court and have the court choose someone. This can be very hit or miss proposition.

Disability Scoop: If the individual for whom the trust was created dies, does any money remaining in the trust then revert to the state?

Diedre Wachbrit: That’s a common misconception. It’s an error that we find in trusts that are drafted by non-specialists all the time, so it’s something to really watch out for. There is a kind of special needs trust where the money does have to pay back the state for whatever medical expenses the child incurred. That is a federal safe harbor special needs trust designed for the beneficiary’s own money. That’s the kind of trust you would have if the beneficiary received an inheritance outright, not in a special needs trust, or if the beneficiary received a lawsuit judgment or settlement.

If you leave a gift to someone in trust so that it never actually goes through their hands, then you do not have to include that payback provision to the state. So any trust that’s set up as part of an estate plan, does not have to include the payback provision to the state.

The terms that the special needs community uses are first party trusts and third party trusts. In third party trusts it’s some third party’s money going in. First party trusts are where the beneficiary and the source of the money are both the same party so it’s the beneficiary’s own money going into it. With a third party trust, there’s no recovery by the state. With a first party trust there is a recovery when the beneficiary dies. The state sends a bill but they only recover what they actually spent on Medicaid for the individual. They can only be reimbursed up to the amount of the beneficiary’s estate, so they can’t go after anyone else.

Disability Scoop: Tax time is rapidly approaching. What do people commonly overlook, whether caregivers or a person with a disability, when it comes to paying taxes or taking deductions?

Diedre Wachbrit: If you’re managing a special needs trust, the trust itself needs to file an income tax return and the income spent on the beneficiary needs to go onto the beneficiary’s income tax return.

In terms of their own tax returns, unfortunately there’s not a lot that caregivers can deduct. If they are proving more than 50 percent of that person’s care, they can claim that person as a dependent. But there are no special deductions for caregivers.

Disability Scoop: Do you need to revise your special needs trust once it’s created?

Diedre Wachbrit: The standard rule is to revisit your estate plan every three to five years. Besides legal changes, a lot of times people need to change their trustees or their conservators because they had a falling out or somebody died or got very ill and couldn’t handle the responsibility. There are a lot of things that happen in the parents’ lives during that three to five year period that dictate changes in their entire estate plan, not just their special needs trust.

Our Web site offers something called a “memorandum of intent” that you can download for free. A memorandum of intent is a very important document for parents to add to their special needs plan. It’s like extended babysitter instructions. It’s where you put things like the child’s developmental pediatrician, occupational therapist and any important names and addresses. You also detail what the person loves to do. That’s what can give a bank trustee or a family member who doesn’t know the child well the opportunity to provide something like the level of care that the parents were providing. Unlike a special needs trust you don’t need an attorney’s help to complete a memorandum of intent and you can update it whenever you feel the urge.

Disability Scoop: What do parents need to consider when planning for themselves?

Diedre Wachbrit: When parents do their special needs planning they need to consider their own estate planning too because if they become incapacitated and have a standard revocable living trust or power of attorney, their child once they’re 18 will not be able to receive any money out of their estate for living expenses because the law says that if you’re incapacitated all of your money has to be used for your benefit.

But if they go to a special needs planner and they incorporate special needs planning throughout their estate plan, it’s going to show up in their revocable trust. It’s going to say distributions can be made for my daughter even after the age of 18 through her special needs trust and it’s going to include a nomination of conservators for her and it’s going to show up in having her be consulted in health care decisions for them while not allowing her to be the one making the actual decisions. So the special needs plan is really more than just the special needs trust.

Disability Scoop: Aside from the issues we’ve already discussed, are there other financial considerations that people may not think of?

Diedre Wachbrit: There are definitely a lot of things parents pay for that they’re not aware they pay for and don’t necessarily think about it. The big one is caregiving. It really can take a couple million dollars in the special needs trust to provide someone with 24/7 care for life. Parents need to consider the value of their caregiving services and they may need to look into life insurance to make up a shortfall.

Read all of Disability Scoop’s original series Scoop Essentials. Your Life. Your Issues. Your World.

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