4 TOOLS FOR PLANNING FOR CHILDREN WITH DISABILITIES

1.  Public Benefits for Children with Disabilities

Needs Based: Supplemental Security Income: SSI

SSI is a needs-based income provided as a public benefit for persons who are disabled, blind, or age 65 or older. As a needs-based program, a person’s income and resources are assessed in order to qualify for SSI. The rules about what counts as a resource vary from state-to-state. Other special rules are in place for married persons applying for benefits. After qualifying for SSI, a person also might qualify for Medicaid to cover medical care and expenses.

• SSI for Children with Disabilities Who Are Under 18
  When a child with disabilities is under 18, the child might qualify for SSI benefits if the child’s and the family’s resources are below a certain limit. These benefits are available for children who are blind or disabled.
• SSI for Children with Disabilities Who Are 18 and Older
  After turning 18, if the child was on SSI before, the child might still qualify provided the disability continues. At this point, only the child’s resources are considered. This is a fit for the adult child who has limited resources, is unmarried, and earns a very low (or no) income.  Application is made with the Social Security Administration.

Disability Based:  Social Security Disability Insurance: SSDI

SSDI, in contrast to needs-based SSI, is disability based. A person’s other resources are not considered in qualifying for SSDI. Instead, this benefit looks at a parent’s social security record and what’s been paid into it. The amount received as a benefit will depend on what was paid into the system. Those who receive SSDI benefits often receive Medicare for coverage of medical care after receiving SSDI benefits for two years.

SSDI is available to children whose disability began before age 22. A child’s benefit is usually available if a parent is either receiving social security retirement (or disability) benefits or was eligible for them (i.e. had paid enough into the system) but has died. Once a child turns 18, he or she can apply for SSDI if the above requirements are met.  Application is made with the Social Security Administration.

2.  Guardianship for Children with Disabilities

Guardianship removes certain rights and privileges from an incapacitated person, referred to as the “ward”. An incapacitated person can be a minor (under 18 years old) or an adult. The guardianship statute defines an incapacitated adult as a person who, because of physical or mental condition, is substantially unable to:

• provide food, clothing or shelter for himself or herself;
• care for the individual’s own physical health; or
• manage the individual’s own financial affairs.

A person is not legally incapacitated until a court has made that judicial declaration. If a person is declared an incapacitated person (ward), the court appoints another person (guardian) to make some or all of these necessary decisions. Whether the court appoints a guardian with broad or limited authority depends upon the physical or mental limitations of the incapacitated person.  There are two types of guardians.  A Guardian of the Person is appointed by the court to take care of the physical well-being of a ward, and a Guardian of the Estate is appointed to care for a ward’s property.

Children with Disabilities Who Are Under 18

Children under 18, with or without disabilities, are by definition legally incapacitated.  When parent caregivers can no longer care for their children due to their own disability or death, children under 18 will need a Guardian of the Person (to make decisions regarding their physical well-being) and perhaps a Guardian of the Estate (to make decisions regarding any property owned outright by the minor) if other planning devices are not in place for the property, such as trusts.  A parent can designate a guardian for their minor child to be effective in the event of the parent’s death or incapacity (via a standalone document or a provision in the parent’s will).  A court must consider this designation when appointing a guardian for the minor child.

Children with Disabilities Who Are 18 and Older

Until age 18, parents have the legal authority to make decisions (medical, financial, etc.) for their child. Most providers of services, including physicians, dentists, and school personnel, do not question this authority when the parent is in charge of his or her minor child and the parent is making decisions, recommendations, and participating in all of the areas where a child needs to be represented.  Once a child turns 18 years of age that authority ceases. The parent must then decide whether to seek decision-making authority for the child, and if so, how and how much authority.

Guardianship

Not every child who has disabilities needs to have a guardian.  After turning 18, a child who, because of physical or mental condition, is substantially unable to:

• provide food, clothing or shelter for himself or herself;
• care for the individual’s own physical health; or
• manage the individual’s own financial affairs

will need a Guardian of the Person and perhaps a Guardian of the Estate, depending on what property the adult child owns individually.

Alternatives to Guardianship.

An adult child who is not legally incapacitated may benefit from less restrictive alternatives to guardianship.  They are less restrictive because they are not court created.

Supported Decision Making Agreement

An alternative that allows someone with a disability to make decisions about their own life with the assistance of a trusted person. The trusted person, known as a “supporter” in this relationship, is usually a friend or family member who guides the person through the process of making a decision by helping them gather information and weigh alternatives. The power to make the decision remains in the hands of the person with a disability.

Powers of Attorney. 

A Durable Power of Attorney is a written document that authorizes another person, known as an agent, to engage in specified business, financial and legal transactions on a person’s behalf. It is called “durable” because it does not terminate if one becomes disabled or incapacitated.  A Durable Power of Attorney can take effect immediately when executed. Another option is to have it “spring” into effect when the principal becomes disabled or incapacitated.

A Medical Power of Attorney is a written document that authorizes another (an agent) to speak to your health care providers and make health care decisions for a person (the principal) when that person cannot make decisions for his or herself.

3.  Trusts for Children with Disabilities

In most cases where a parent will leave funds at death to a disabled child, doing so in the form of a trust should be considered.  The specific type of trust should also be considered.  Supplemental needs trusts (also known as “special needs” trusts) are an important component of planning for a disabled child (even though the child may be an adult by the time the trust is created or funded), especially if a child receives public benefits or if planning for public benefits is desired. These trusts allow a disabled beneficiary to receive inheritances, gifts, lawsuit settlements, or other funds and yet not lose his or her eligibility for certain government programs. The trusts are drafted so that the funds will not be considered to belong to the beneficiary in determining eligibility for public benefits.

As their name implies, supplemental needs trusts are designed not to provide basic support, but instead to pay for comforts and luxuries that could not be paid for by public assistance funds. These trusts typically pay for things like education, recreation, counseling, and medical attention beyond the simple necessities of life.

4.  ABLE ACCOUNTS

The Achieving a Better Life Experience (ABLE) Act is a federal law that created a tax-advantaged savings option for people with disabilities.  Texas enabled its version of the Act in 2015.  The Texas ABLE Program was established to encourage and assist individuals with disabilities and their families in saving funds to pay for many disability-related expenses critical to maintaining the individuals’ health, independence, and quality of life. Now individuals with disabilities can save money (in their own name) to pay for certain disability expenses without the fear of exceeding the Medicaid individual resource limit.

Eligibility

An individual is eligible to open an account if the following three requirements are met:

1. The individual is a Texas resident.
2. The disability was present before age 26.
3. The disability can be proved through one of the following ways:

• SSI or SSDI Eligibility: The individual is entitled to receive SSI or SSDI based on blindness or disability, or entitlement to SSI benefits has been suspended solely based on excess income or resources.
• Physician’s Diagnosis: A licensed physician has provided the individual with a written diagnosis that the individual: a) is blind (within the meaning of the Social Security Act), or b) has a medically determinable physical or mental impairment that results in marked and severe limitations that can be expected to result in death or has lasted or is expected to last at least 12 months.  Note: a copy of the diagnosis does not have to be provided during enrollment, but a copy of the diagnosis must be available upon request.
• Compassionate Allowances Conditions: The individual has a condition listed on the Social Security Administration’s list of Compassionate Allowances Conditions.  These conditions primarily include certain cancers, adult brain disorders, and a number of rare disorders that affect children.

Who Owns and Manages the Account

The disabled individual (Designated Beneficiary) can open and manage his or her own account.  Alternatively, an Authorized Legal Representative may open and manage the account if the disabled individual is under the age of 18, is not able to exercise signature authority over an account, or chooses to establish an account but not to exercise signature authority.  The Designated Beneficiary remains the owner of the account.

Contributions & Earnings

The maximum lifetime contribution limit is $500,000, though a lower limit of $100,000 generally applies for Supplemental Security Income purposes of determining eligibility to receive government assistance or benefits.

The disabled individual, or anyone (friends, family) can contribute to the account; however, there is a $17,000 annual combined contribution limit in 2023.

Families with a 529 college savings account for a disabled individual can transfer funds to an ABLE account for the individual without incurring any tax or penalty. In accordance with current federal law, this type of transfer is available up until December 31, 2025.

Earnings on an ABLE account grow tax free.

Qualified Disability Expenses

Qualified Disability Expenses include any expenses that relate to the blindness or disability of the Designated Beneficiary, and are for the benefit of the Designated Beneficiary in maintaining or improving his or her health, independence, or quality of life.

Distributions are tax-free if used for Qualified Disability Expenses.  Such expenses include, but are not limited to, expenses related to the Designated Beneficiary’s education, housing, transportation, employment training and support, assistive technology and related services, personal support services, health, prevention and wellness, financial management and administrative services, legal fees, expenses for oversight and monitoring, funeral and burial expenses, and other expenses that may be identified from time to time by the IRS.

The Designated Beneficiary or Authorized Legal Representative is solely responsible for maintaining records to show Texas ABLE account funds were used for a Qualified Disability Expense, including bank records, invoices, and receipts. While the account administrator does not require documentation when requesting a withdrawal, the account owner may be asked by state or federal agencies to verify expenditures.

Non-Qualified Withdrawals

Any funds withdrawn that are not used to pay for a Qualified Disability Expense (a “Non-Qualified Withdrawal”) will be considered an asset for purposes of determining eligibility for certain means-tested federal programs, including Medicaid, SSI and SSDI. Any withdrawal for housing expenses that is not spent in the month the withdrawal is received will also be considered an asset for SSI purposes.

The earnings portion of a Non-Qualified Withdrawal is subject to federal income taxation, and an additional 10% federal tax will be assessed (unless an exception applies).

What Happens to the Account at Death

If any funds remain in an ABLE account at the account owner’s death, first, all outstanding requests for withdrawals for Qualified Disability Expenses, including funeral and burial expenses, will be paid from the account.

Next, any state that has provided Medicaid assistance to the beneficiary may file a claim against the beneficiary’s estate or the ABLE account for the amount of the total medical assistance paid for the beneficiary under the state’s Medicaid plan after the account (or any ABLE account from which amounts were rolled over or transferred to) was established.

Finally, if any funds still remain after the above requests for withdrawals and claims are satisfied, the account owner can designate a beneficiary to receive those funds.

Article by Mindi Zanowiak
Sprouse Shrader Smith PLLC