How to Leave Assets to Disabled Loved Ones
Our society generally skirts around the subject of death and dying. There’s no coming of age “death talk” that most children awkwardly sit through. General interest in it is categorized as morbid or macabre, and we even avoid saying the words, imploring euphemisms like “pass away” instead. It’s no surprise that estate planning – actively preparing for one’s own death – isn’t exactly a hot topic either.
The average person has a general idea of what a Last Will and Testament is by the time they’re old enough to have one, but what about a Revocable Living Trust, Advanced Health Care Directives, or a Power of Attorney? How familiar are words like probate, intestate, or testate? Unfortunately, many of us only truly learn about estate planning out of necessity, when we’re confronted with the realities of bad planning.
One such reality is what can happen when assets are incorrectly left to individuals with disabilities. Whether unintentional (through having no plan) or accidental (through having a faulty plan), leaving money or other assets to a disabled loved one could cause them to lose the government services they rely on. Thankfully, with a little education and smart planning, this issue can be completely avoided.
There are four major types of disabilities: physical, developmental, behavioral/emotional, and sensory impaired. The official definition for adult disability is an adult who is “unable to engage in any substantial gainful activity because of a medically determinable physical or mental impairment(s) that is either expected to result in death, or has lasted, or is expected to last, for a continuous period of at least 12 months,” according to the Social Security Administration.
For child disability, the definition is similar: “medically determinable physical or mental impairment or combination of impairments, that causes marked and severe functional limitations, and that can be expected to cause death, or that has lasted, or can be expected to last, for a continuous period of not less than 12 months.”
Many disabled individuals rely on government assistance for basic expenses such as food and shelter. The most common form of this assistance is known as Supplemental Security Income, or SSI – “a monthly benefit paid to people with limited income and resources who are disabled, blind, or age 65 or older.” In August 2022, about 7,608,000 people received SSI. Of these, over five million were under the age of 65 and disabled (for you fellow data nerds, that’s about 1.6% of the U.S. population).
In addition to the supplemental income to help cover the cost of living, low-income individuals with disabilities are also eligible for Medicaid. This program provides recipients the health care they need at low to no cost, particularly critical for those whose physical or mental impairments require significant medical care. Between Medicaid and SSI, millions of disabled Americans know at least their most basic needs will be met.
The huge asterisk in these programs is “low-income”: both are intended exclusively for the low-income and low-resource individual. To be eligible, applicants’ resources and income must be below set caps, meaning that if a person’s assets suddenly increase, such as from an inheritance, they could be disqualified from the programs and lose the benefits they depend on.
Now that we know what’s at stake, let’s take quick a look at those income and asset caps. In North Carolina, all Supplemental Security Income beneficiaries are automatically eligible for Medicaid, so we’ll just focus on their requirements, using data from 2022:
The program’s set resource limits are $2,000 for an individual or child and $3,000 for a couple. This includes cash, bank accounts, stocks, land, and vehicles, though some assets, such as the applicant’s home and primary vehicle, aren’t counted. Depending on the situation, some resources belonging to the applicant’s spouse, parent, or parent’s spouse may be considered “deemed resources” and contribute to this cap.
Income is categorized as either earned or unearned – for our purposes, unearned income is what matters. To maintain eligibility for SSI, an individual must receive less than $861 per month in unearned income and a couple must receive less than $1,281. If that individual is under 18, their parent’s unearned income is considered instead and has its own limit.
Note that in both scenarios (income and resources), a parent or spouse receiving a sudden increase in assets could disrupt the disabled person’s benefits just as if that person had received the assets themselves.
So how exactly can someone leave assets to their disabled loved ones without disqualifying them from SSI and Medicaid? This is a pressing question, particularly as these programs, though crucial, are limited; to maintain a comfortable lifestyle, a disabled individual may need additional assistance. Thankfully, there is a solution. Whether you are a caretaker on whom a disabled child or adult relies, or simply would like to include a disabled individual in your estate plan, you can use a Supplemental Needs Trust to provide for them after your death – without disrupting their benefits.
Supplemental Needs Trusts are a tool to protect assets of or left to an individual who is the recipient of Supplemental Security Income, Medicaid, or other public benefits—especially need-based benefits. If the SNT is properly drafted, the assets held within are not considered available or countable assets of the individual. Rather, a Trustee manages the assets for the individual and makes disbursements directly to the provider of goods and services for the benefit of the individual.
There are several different types of Supplemental Needs Trusts (SNT), each designed to address a different situation and goal. To leave a disabled individual an inheritance, a Third Party SNT is used. The grantor can “fund” the SNT with any assets they wish, stipulating how those assets are to be used for the disabled individuals needs.
The First Step
Disqualifying loved ones from critical government benefits is just one of the unintended consequences of poor or no estate planning. A little education can go a long way, and at Susan Hunt Law we are BIG on estate planning education. Our goal is to help families learn and plan now, avoiding messy and costly futures. You can learn more through our free resources or schedule a complimentary Family Wealth Planning Session to begin your own planning today.