Invite Others to Contribute to the 3rd Party Special Needs Trust

When parents ponder how to provide for their child with special needs, they sometimes forget one of the key advantages of a 3rd party special needs trust that is created while the parents are still alive: the trust can be the recipient not just of the obvious assets that are available for the child. Members of the extended family (grandparents, aunts, uncles, etc.) and friends can also make gifts to the trust or remember the trust as they plan their own estates.

In addition to the gifts and inheritances from other people who love the child, parents can leave their own assets to the trust in their will or trust. They can also name the trust as a beneficiary of life insurance or retirement benefits. Parents might consider whether making the trust the beneficiary of a life insurance policy makes sense now, while they are still healthy and insurance rates are low.

An attorney whose practice focuses on helping families with children who have special needs can assist you in setting up a trust that can receive such gifts and ensuring the gifts are properly allocated so they do not jeopardize any public benefits the child may receive.

* The information contained in this Blog is intended for general information and educational purposes only and does not constitute legal advice or an opinion of counsel.

Social Security Benefits Increase

In January, 2013, Social Security monthly payments will increase by 1.7%.  The cost of living increase is low as a result of low inflation over the year.   Last year the increase was 3.6%.  This increase of only 1.7% is one of the smallest increases since automatic annual cost-of-living adjustment was adopted in 1975.

While any increase is certainly a benefit to Social Security recipients, it is expected that some of this increase will be wiped out by higher Medicare premiums.  Although exact figures for the increase in the Medicare premium have not yet been released, it is expected that the premiums will increase from $99.90 per month to approximately $107.00.

Social Security is funded with 12.4% taxes on wages of employees, with that tax being split between the worker and the employer.  The Social Security tax paid by workers had been temporarily cut from 6.2% to 4.2% for 2011 and 2012.  This tax rate will revert back to 6.2% in 2013 unless there is some change by Congress.  Social Security taxes were previously on wages of up to $110,100 and this amount will increase to wages of up to $113,700 in 2013, which will increases taxes for workers and employers.

* The information contained in this Blog is intended for general information and educational purposes only and does not constitute legal advice or an opinion of counsel.

Child Support and Supplemental Security Income

Supplemental Security Income (SSI) is a federal program that provides cash assistance to people with disabilities who have very limited incomes and resources. In most cases, SSI recipients may also obtain a much more important benefit — automatic Medicaid eligibility. Because access to SSI depends on a beneficiary’s income and resources, even small increases in income can cause a reduction or loss of SSI benefits. Unfortunately, when an SSI beneficiary’s parent is ordered to pay child support, those payments can end up ruining the beneficiary’s access to government benefits.

Child support payments are a problem for SSI recipients because the Social Security Administration (SSA) treats a substantial portion of a child support payment as unearned income for purposes of calculating SSI benefits. Receipt of unearned income results in a dollar-for-dollar reduction in an SSI benefit, so, for instance, an SSI beneficiary who receives $200 in unearned income has her SSI benefit reduced by $200 in the month that the income is received. If the amount of unearned income is greater than the entire SSI benefit (for example, when someone has a $500 monthly SSI benefit and she receives $600 in unearned income), the beneficiary loses SSI, and, potentially, Medicaid.

Fortunately, the SSA does not always count an entire child support payment as unearned income. If a child support recipient is younger than 18 (or 22, if she is still in school), and if the recipient receives the payment from an absent parent (defined as a parent who does not live in the same household as the child), then the SSA considers only two-thirds of the payment as unearned income. However, this is small consolation for an SSI beneficiary who has her assistance reduced or terminated despite the one-third break.

There are several ways to handle child support for a child with special needs. If the amount of the child’s SSI benefit is clear at the time of the divorce, it may be possible to agree upon a child support settlement that reduces, but does not eliminate, SSI. (Of course, the benefit of receiving SSI and Medicaid has to be weighed against the advantages of a larger child support payment. In some cases, it may be better to forgo SSI and receive a larger child support award instead.)

In other cases, it may make sense to create a special needs trust for the child’s benefit. The court can then order the non-custodial parent to make support payments directly into the special needs trust. The trust will shelter the income and allow the child to retain SSI benefits, and, in many cases, the support payments can be retained in the trust if not immediately used. Unfortunately, these particular special needs trusts are not perfect because they must contain a “payback provision” that allows the government to recover its Medicaid expenses from the unused assets in a deceased SSI beneficiary’s trust. However, if properly managed, there may not be a large sum remaining in the special needs trust when the beneficiary passes away.

If you are in the middle of a divorce, or if previously agreed-upon child support payments are wreaking havoc with your child’s SSI benefits, talk to your special needs planner about your options immediately.

* The information contained in this Blog is intended for general information and educational purposes only and does not constitute legal advice or an opinion of counsel.