In our post last week, we discussed the acceptance phase when you first learn a child or grandchild has special needs. This post is a reminder on the various tools – both old and new – available to ensure financial resources are in place without affecting government benefit eligibility.
Special needs – this broad term encompasses severe brain injuries which require nearly round-the-clock care to autism which allows for work with certain accommodations. When Medicaid, Supplemental Security Income or other state or federal governmental programs provide support, you should consider setting up a special needs trust or ABLE account.
A special/supplemental needs trust
This tool allows you to give funds to a sibling, child or grandchild who, because of disability, will need support throughout their lifetime. The money in this type of trust benefits your special needs loved one, but a trustee has control and management authority (often this is the family member who takes over care duties).
Medicaid and SSI along with various other government benefits come with income and asset limits. Inadvertently leaving a gift directly can affect eligibility. Making all gifts to the supplemental needs trusts avoids this issue.
Life insurance offsets
Many families use life insurance to equalize gifts between children. This can address any concerns about fairness when one child needs more financial support than the others.
You can list a supplemental needs trust as the beneficiary on a life insurance policy. This is one way to separate the issue and divide the remainder of your estate equally between children.
Last year, ABLE accounts became available through a Colorado state program.
These accounts operate like 529 college savings plans – the IRS does not tax dividends and interest income when money is spent on qualified expenses. Each year, family members can add up to $14,000. While the balance cannot exceed $400,000, be aware that if the balance exceeds $100,000 it could affect SSI eligibility.
Plan ahead and seek personalize legal advice. Each family has a unique financial situation and differing goals, find a tailored solution that meets your needs.