Special Report - Part 5 of 12 Facts Every Special Needs Family Must Know About Estate Planning






Fact # 5 – You must understand the relationship between estate planning and government benefits.

Many individuals with disabilities receive government benefits of one kind or another. Effective planning will enable you to maximize the available government programs and services, while using your estate funds to supplement them. It is important to consider both the government benefits your relative is currently eligible for, as well as the benefits that will become available at a later date (e.g. upon your retirement or death).

It is essential for you to understand how eligibility for major governmental sources of assistance to persons with disabilities works and the effect inheritance can have on those sources. There are three general categories of government benefits:

those available regardless of assets or unearned incomes (e.g., Social Security Disability, Railroad Retirement, and Medicare);

those available to otherwise eligible individuals if their income and assets remain below a certain level (e.g., Supplemental Security Income (SSI), Medical Assistance (Medicaid), Food Stamps, General Assistance, and Temporary Assistance to Needy Families (the last two types of benefits often are referred to as “Welfare”); and

those available to otherwise eligible persons, regardless of their assets or income, which may carry a cost based on assessed ability to pay (e.g., Mental Health and Mental Retardation services, Children and Youth services, Vocational Rehabilitation services).

It is important when planning your estate that you don’t unintentionally disqualify your child for government benefits or increase yours or their liability for services. Planning your estate will ensure that your special needs child is protected, and will have access to the services they need. The impact for each of the three categories of government benefits on estate plans is discussed below.

A.Category One: Social Security and Medicare

Estate dispositions have no effect on the first category of benefits that includes Social Security Disability and Medicare, because the benefits are available regardless of a person’s assets and unearned income.

Social Security is a federal insurance program that provides monthly cash benefits to insured workers or their dependents when the worker retires, becomes disabled, or dies. Therefore, if you are employed and covered by Social Security and retire, become disabled, or die, your children will receive monthly payments based on your earnings record until they are 18 (or 22 if they attend school full-time). Additionally, an unmarried child who becomes disabled before age 22 will be eligible to receive payments as long as that disability lasts, regardless of his or her age at the time of your retirement, disability or death. If your relative was employed and covered by Social Security, he or she may qualify for benefits based on his or her own earnings record or that of his or her spouse.

Your relative will be considered disabled for the purpose of Social Security eligibility if he or she has a physical or mental impairment that prevents him or her from doing substantial gainful work, and the impairment has lasted or is expected to last at least 12 months. Many sheltered workshop employees are eligible for Social Security disability payments because they do not earn a substantial amount of money. Also, payment may continue for a trial period after a new job or training program has begun.

Social Security disability benefits are not based on financial need and are not affected by unearned income (for example, gift, inheritance, or interest) or by the assets of the person with a disability. You can, therefore, plan your estate without having to worry about disqualifying your child from eligibility for Social Security benefits.

Anyone who has received Social Security for at least two years, regardless of his or her age, is also eligible for Medicare. Medicare can help pay for the cost of hospital care, certain follow-up services, and physicians’ services. It does not, however, cover all hospital and physicians’ costs, and is subject to an annual deductible, which must be paid before benefits begin. You may want to purchase supplemental private insurance (sometimes called Medigap or 65-Special insurance) for your child to cover the additional charges. Before you do, be sure to determine whether your relative is also eligible for Medical Assistance (Medicaid), which is discussed in the next section. Additional information on Social Security and Medicare is available from your local Social Security office.

Category Two: Supplemental Security Income (SSI) And Medical
Assistance (Medicaid)

The second category of government benefits – those available to otherwise eligible persons, if their income and assets remain below a certain limit – can be lost entirely if a person with a disability has too many assets or too much income (either earned or unearned). Of the government benefits in this category, Supplemental Security Income (SSI) and Medical Assistance (Medicaid) are the most common and the most important to understand.

SSI is a federal program providing monthly cash payments to individuals with disabilities who have little income and few assets. SSI is important both for the financial support it provides and because eligibility for SSI is used as a touchstone for eligibility for other services. For example, eligibility for even the minimum monthly SSI payment renders a person eligible for full Medical Assistance benefits and various rehabilitative programs and social services.

The maximum SSI monthly payment amounts vary and are determined by the federal and state governments. SSI is designed to supplement whatever income is available from other sources, bringing it up to that maximum amount. Therefore, it is possible for a person to be eligible both for Social Security disability payments and for SSI payments. SSI is administered by the Social Security Administrative, but it is not the same as the Social Security program. While the criteria for determining whether a person is disabled are the same in both programs, a disabled person must have no more than a very limited amount of assets and a limited income to be eligible for SSI. Because an individual’s unearned income and assets are considered in determining eligibility for SSI, it is important to know that gifts, inheritances and trust assets/income may disqualify a person from receiving SSI. Therefore, your relative’s continued eligibility for SSI must be an important consideration in planning your estate.

Medical Assistance (Medicaid) is a program of medical insurance administered by the state and jointly funded by the state and federal governments. Medicaid covers doctors’ bills, hospital care, home health care, and medication. An increasing number of mental health/mental retardation services are funded through Medicaid. If a person with a disability is eligible for both Medicare and Medicaid, Medicaid will pay the Medicare deductible. This extremely valuable medical benefit, like SSI, can be lost if a person has too many assets or too much earned and unearned income, and therefore careful estate planning is necessary to preserve Medicaid eligibility. As you know, Medicaid is also going through a period of dramatic change, so be aware that programs and benefits that are available now may not be available in the future.

Category Three: Mental Health/ Mental Retardation (MH/MR) Benefits

The final category of benefits are those provided on an ability-to-pay basis. They are available to eligible people regardless of their assets or income, but people without assets or income get them for free, while people with assets and income are charged according to their ability to pay. The amount that a person is expected to pay for these services is called liability. The most common example of this kind of benefit is MH/MR services. In Pennsylvania, parents have no liability for MH/MR services provided to their children over age 18, but those children have a liability based on their own assets and income. The amount of the liability is determined by the regulations of the Department of Public Welfare. In planning your estate, you should carefully consider whether an inheritance will increase your child’s liability for MH/MR services.



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