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SPECIAL NEEDS FINANCIAL PLAN

Special needs planning is a delicate balancing act. Setting aside enough money to properly support a special needs beneficiary through their lifetime can disqualify them from the often much-needed government benefits SSI and Medicaid.  

SSI, SSDI, AND MEDICAID

Supplemental Security Income or SSI is a federal program that provides financial aid to adults with qualified disabilities. Eligibility begins at age 18. There are financial restrictions on how much can be saved in the name of the beneficiary; therefore, a special needs individual is limited to having no more than $2000 in their name to qualify for SSI. In other words, they must be considered low-income. However, as an additional protection layer for the special needs individual, “SSI often serves as a gateway to health insurance under Medicaid”(Rupp & Riley, Social Security Administration).  

Social Security Disability Insurance (SSDI) differs from SSI in that it pays income benefits to the special needs child of a parent who worked 10+ years while contributing to Social Security. The child becomes “eligible due to the death, disability, or retirement of the parent”(Nadworny & Haddad, 2007). 

Medicaid is healthcare funded by both the federal government and by the state where the beneficiary resides. In California, SSI automatically notifies Medicaid of the beneficiaries’ eligibility. Some other states are not that lucky and additional application and assessment will be required.  

SPECIAL NEEDS TRUST

What can be done to shield assets from disqualifying a beneficiary? A special needs trust may be established to help protect beneficiary eligibility for SSI and Medicaid. When considering the cost of future care for a special needs person, parents may wish to set aside funds for the support above and beyond that which is provided by SSI and Medicaid which is intended to pay only basic low-income needs. If this is the case, they may choose to place funds into a special needs trust, which removes the assets from the direct name of the beneficiary. There is a cost to set up a special needs trust with a qualified attorney who specializes in special needs planning. Potentially there may be a cost to maintain the trust on an ongoing basis as it must be appropriately managed by a fiduciary (someone acting only in the best interest of the beneficiary). A fiduciary may be a parent, bank, or third-party fiduciary service. The bank or fiduciary service will also charge a fee. 

ABLE ACCOUNT

A supplement or alternative to a special needs trust is the use of an ABLE account. Up to $100,000 can be put into a California CalABLE account which will not disqualify the beneficiary from receiving SSI or Medicaid benefits. ABLE accounts give holders the ability to benefit from some tax-savvy strategies. In short, the money put into an ABLE account has already been taxed, but once the account is funded, it can grow tax-deferred and at the time of distributions, within certain guidelines, it will be received tax-free. Qualified distributions which result in tax-free distribution “include education, housing, transportation, employment support/training, assistive technology and personal support services, health and wellness, financial management and administrative services, legal fees, expenses for oversight and monitoring, and funeral and burial expenses”(Kitces , 2019). 

To be eligible for an ABLE account also known as a Section 529A plan, one must already be receiving SSI, SSDI, or Medicaid.

There are drawbacks associated with an ABLE account. Again, they allow a maximum account balance of $100,000. The maximum contribution is $15,000 per year which on the plus side coordinates for tax purposes with the annual gift tax exclusion. However, if too much is contributed during any one year a 6% penalty may be applied if steps are not immediately taken to correct the excess contribution. Of important notice, “any remaining funds in a 529A account at the death of the beneficiary must be used to repay the state for any Medicaid assistance received by the beneficiary after the account was created”(Kitces , 2019).  

Conclusion

Supplemental Security Income or SSI is a cash compensation program and Medicaid is health insurance which depending on the state the beneficiary resides, may or may not be automatically triggered by SSI eligibility. Often a special needs trust is established to circumnavigate SSI and Medicaid eligibility restrictions, but they can be costly to put in place. ABLE accounts are a low-cost alternative that allows tax-deferred growth and tax-free distributions for qualified expenses. They are funded with after-tax dollars, and cap at a maximum account value of $100,000. “The value of a 529A plan is generally not considered when determining eligibility for means-tested Federal and state aid” (Kitces , 2019). Therefore, the beneficiary is able to maintain their financial and healthcare government and state aid while keeping this important supplemental funding account active. However, it is important to remember, the state becomes a creditor of the ABLE account. When the ABLE beneficiary passes away, any funds remaining in the ABLE account will first be used to repay the state for Medicaid benefits received.  

About the Author

Author, Marianne Martini Nolte, Certified Financial Planner ™ practitioner, provides fee-only, fiduciary, independent financial services. Her firm, IMAGINE FINANCIAL SERVICES (IFS) is a registered investment advisor offering advisory services in the State of California and in other jurisdictions where exempted. Marianne’s focus is serving Women and Young Professionals from generations X, Y, and Z. This article is intended as a high-level view. 

All written content is for information purposes only. Opinions expressed herein are solely those of IFS, unless otherwise specifically cited. Material presented is believed to be from reliable sources and no representations are made by our firm as to other parties’ informational accuracy or completeness. 

For more in-depth information, please reach out:

Marianne Martini Nolte, CFP®

Imagine Financial Services 

Website, www.imaginefinancialservices.com 

Email, mnolte@imaginefinancialservices.com

Phone, (760) 472-5155

REFERENCES

Kitces , M. (2019, February 1). Will Section 529A Plans Replace Special Needs Trusts? Nerd’s Eye View | Kitces.com. https://www.kitces.com/blog/will-section-529a-able-accounts-replace-the-need-for-disabled-beneficiary-special-needs-trusts/. 

Nadworny, J. W., & Haddad, C. R. (2007). In The special needs planning guide: guide ; how to prepare for every stage of your child’s life (pp. 87–88). essay, Paul H. Brookes. 

Rupp, K., & Riley, G. F. (2016, August 1). Social Security Administration. Social Security Administration Research, Statistics, and Policy Analysis. https://www.ssa.gov/policy/docs/ssb/v76n3/v76n3p17.html. Social Security Bulletin, Vol. 76 No. 3, 2016