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Providing for your disabled loved ones

David Silver teaches The Legal Environment of Business in ECU's Department of Finance. Dave is also a Partner with The Graham.Nuckolls.Conner Law Firm in Greenville, NC, concentrating in Elder Law

An estate plan for most people is relatively uncomplicated: everything goes to my spouse if living, otherwise to my kids. However, if you have a loved one who relies on a public benefit as a result of a disability, an inheritance from you could make that person ineligible for their needed public benefits. Don't make things worse, make a plan.

The most common public benefits for the disabled that I deal with in my law practice are SSDI, SSI and Medicaid. SSDI is Social Security Disability Insurance. It is similar to private disability insurance, and it is not a needs-based program. If your loved one worked for over 10 years and then became disabled, they are likely receiving SSDI. Your loved one could receive an inheritance of millions of dollars from you and still qualify for SSDI.

SSI stands for Social Security Income, and it is a needs-based program for people with low income and minimal assets. SSI is designed to provide income for food, shelter and other basic needs of the elderly, blind and disabled individuals. To qualify for SSI, a disabled person must have income of less than $753 per month, and have countable assets of under $2,000.00. If your loved one was born with a disability, he or she would likely qualify for SSI.

SSI will provide your loved one with a small monthly check that will hopefully pay for their basic needs. However, this check will not be sufficient to pay for activities, pay for trips, buy certain products or equipment, or do any other number of things to improve your loved ones' quality of life.

Medicaid is a need-based health insurance program that covers disabled individuals (among others) who have countable incomes of less than $990 per month and countable assets of under $2,000. In addition to basic health insurance, Medicaid also provides for some services specific to the disability.

Even if your loved one could get by without the small SSI check based upon your inheritance, the loss of Medicaid's health insurance would be costly, and possibly irreplaceable if the Affordable Care Act's ("Obamacare") ban on denying coverage for pre-existing conditions is repealed. Fortunately, there are a few methods for leaving assets to a disabled loved one without risking disqualification for SSI or Medicaid.

The simplest, but most risky, method is to leave money to a third party and trust that they will use the funds for your loved one. Since the assets are not owned by the disabled loved one, they can't be countable assets. However, if the third party dies, gets sued, gets divorced, or gets greedy, there is no recourse.

The safest, but costliest, method is to leave money to a Special Needs Trust (often also called a Supplemental Needs Trust or SNT). An SNT is a type of trust that can pay for those things that will improve your disabled loved ones' quality of life, but is not considered a countable asset when determining SSI, Medicaid or most other public benefits. If the disabled person's own money is put in an SNT, then Medicaid must usually be "paid-back" from any funds remaining in the SNT when the disabled person dies. However, if the SNT is not funded by the disabled person, then Medicaid is not entitled to receive any of the funds remaining in the SNT at death. An SNT is a formal document, and bad things may result (like benefit ineligibility or Medicaid payback) if the SNT is not done correctly.

The newest tool available is an ABLE account. The Achieving a Better Live Experience Act, signed into law in December of 2014, allows states to set up savings accounts for disabled individuals that will not be considered a countable asset for SSI, Medicaid, or other federal benefits. Similar to Roth IRAs, the accounts must be funded with post-tax funds and they grow tax-free, but funds can be withdrawn at any time. The maximum contribution to an ABLE account is $14,000 per year, and it wont be considered an asset for SSI until the account grows to over $100,000. Only one ABLE account per person.

To be eligible for an ABLE account, the person must be under 65 and have had a disability that began before the age of 26. North Carolina has not yet set up ABLE accounts, but citizens are free to set up accounts in the states of Ohio, Nebraska and Tennessee. It doesn't matter whose money is used to fund the ABLE account, but Medicaid will have a claim of payback against any remaining funds at the disabled person's death. If the disabled person can't manage the funds, that person's parent, guardian or attorney-in-fact can establish the account and have signature authority over the account.

If you wish to provide for a loved one with a disability following your death, I usually recommend creating an SNT. However, if the amount of assets you would leave at your death to your disabled loved one is under $14,000, then an ABLE account would allow you to cost-effectively provide for your loved one without jeopardizing eligibility for public benefits.

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