Federal Government Benefits – Entitlements
- If your child meets the definition of disabled by Social Security AND the income and asset test (No more than $2,000 in your child's name) they are eligible for needs-based entitlement programs.
- The second type of entitlement benefits require that the parent or the individual themselves have contributed to the fund.
| Entitlements: Needs Based | Entitlements: If Contributed |
|---|---|
| Supplemental Security Income (SSI) | Social Security (SSDI) |
| Medicaid | Medicare |
| Premium Reimbursement | Veterans Benefits |
| Adult family Care (AFC) | Federal & Military Benefits |
| Personal Care Assistance (PCA) | Civil Service Benefits |
State Government Benefits – Non-entitlements
Your state of residence may appropriate the funding necessary to pay for the following non-entitlement programs. Since funding is limited, individuals may often be prioritized. Understand the process your state follows and advocate in advance.
| Non-Entitlement Programs |
|---|
| Housing subsidy- under Housing and Urban Development or HUD |
| Rental subsidy – under Section 8 housing- HUD |
| Flexible family supports |
| Residential supports |
| Transportation services |
| Adult day service programs |
| Supported employment services |
For more information, read How to Identify, Maximize and Protect Government Benefits at info.specialneedsplanning.com/en/en- us/identify-maximize-and-protect-eligibility-for-government-benefits
At this point, the goal is to have set aside savings to help secure your future and that of your adult child with a disability. There are numerous financial planning techniques to consider that will combine government benefits with your personal resources to fund a full life for your child. Here are a few examples of creative uses of common planning tools.
SPECIAL NEEDS PLANNING STRATEGIES
Combining Personal Resources and Government Benefits – The ABLE Account: The ABLE or 529 (A) account is a tax- advantaged account for individuals with disabilities to save to help support their health, independence, and quality of life.
Keep in mind that the ABLE was designed primarily as a savings vehicle, not an estate planning tool. Here are a few examples of how an ABLE account may be used in special needs planning. All examples are subject to the rules and regulations governing ABLE accounts; please refer to the ABLE National Resource Center at ablenrc.org or nast.org for details.
- The ABLE allows the account owner to have savings in their name.
- The diagnosis of a qualifying disability must be prior to age 26.
- Families have added flexibility in their savings as they are able to transfer money from a 529 College Savings Plan to a 529(A) ABLE account.
- Money in an ABLE account may be used to pay for housing expenses without impacting the owner's social security benefit. A Special Needs Trust (SNT) may distribute funds to a beneficiary's ABLE account which may then be used to pay for their rent or other housing and qualified expenses.
Using Life insurance to Fund a Special Needs Trust (SNT): There are two ways to fund a Special Needs Trust with life insurance.
- Make a properly drafted SNT the beneficiary of the life insurance policy. This may result in the proceeds being included in the insured's estate. In some states, there may be estate tax due.
- When it is important to exclude life insurance proceeds from the insured's estate for tax purposes, Crummey provisions may be used. We suggest working with a qualified estate planning attorney to determine the best structure to use.
Special Needs Trusts (SNTs) and Retirement Accounts – The Roth IRA: A Roth IRA is a retirement account funded with after-tax dollars. The contributions are not tax deductible but when you start withdrawing funds, qualified distributions are tax-free. There are many rules and restrictions that apply to a Roth IRA as detailed by the IRS (irs.gov/retirement-plans/roth-iras).
Grandparents (and parents) should consider a Roth IRA for themselves, rather than funding an ABLE Account, when thinking about gifting options. A Roth IRA would allow the account owners to save with tax-free growth and retain control of the contributions, enabling them to allocate and use the funds when they choose and for any purpose. They may consider making a SNT the beneficiary.
Qualified Retirement Plans – It is important to review the beneficiary designations of your retirement plan accounts. With recent changes from the SECURE Act (effective 1/1/2020), there may be advantages in your personal planning to name your child's qualified SNT as a beneficiary. Individuals with disabilities who have a qualifying SNT meet the IRS definition of exception beneficiaries.
We hope you have found this information to be helpful. As each family's situation is unique, we recommend working with an experienced and knowledgeable Certified Financial Planner Professional (CFP®), Chartered Special Needs Financial Consultant (ChSNC ®), CPA, or attorney before implementing the financial planning ideas above. We have additional information and significant resources to help families plan available for free on our website, Special Needs Financial Planning at specialneedsplanning.com
ABOUT THE AUTHOR:
John Nadworny, CFP®, CTFA is a founder and partner of Affinia Financial Group in Burlington, MA, and the father of James, who is 31 years old and has Down Syndrome. He is co-author of The Special Needs Planning Guide: How to Prepare for Every Stage of Your Child's Life, soon to be released in its Second edition by Brookes Publishing Co.
Affinia Financial Group (www.affiniafg.com) conducts business under the Special Needs Financial Planning name. Advisory services offered through Affinia Financial Group, LLC, a registered investment advisor. This content is intended to provide general information about Affinia. It is not intended to offer or deliver investment advice in any way.