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The unique needs of a disabled child should be taken into consideration when there is a divorce decree or and/or child support order. Lack of planning can result in current or future loss of important government benefits, including Supplemental Security Income (SSI) and Medicaid. It is never too early to start special needs planning as decisions or indecisions made when the disabled child is a minor will impact his or her ability to get these important government benefits as an adult.
The cornerstone of special needs planning is a special needs trust. A special needs trust (SNT) is a legal document which preserves assets for the benefit of the individual without jeopardizing much needed government benefits. Some adults with disabilities are unable to sustain full time employment and will need these important government benefits to survive day to day. Because SSI and Medicaid are poverty programs, there are strict limits on the amount of income and resources an individual can have and still be eligible. Special needs trusts are an important tool as assets held in a properly drafted SNT are not counted against the disabled child or adult for SSI or Medicaid purposes. This allows the disabled person to have a better quality of life and still be eligible for programs designed for individuals in poverty.
Divorce and Special Needs Trusts
There are several ways in which a special needs trust can be used in situations where the parents of a disabled child no longer share a household or live as a family. When parents are getting a divorce, the parties should consider incorporating the creation and funding of a third party special needs trust in a divorce decree. Otherwise, even well-intentioned arrangements made by the parties to provide for the future needs of the disabled child may inadvertently disqualify the child from government benefits or create other negative consequences. The third party special needs trust can be used to make purchases for the disabled child as needed, or the assets in the trust can accumulate for use at a future time.
Child Support and Special Needs Trusts
Another situation in which a different type of special needs trust can be beneficial is when a disabled child is eligible for SSI and child support. To be eligible for SSI, a disabled individual needs to meet financial eligibility and a disability determination under Social Security Rules. For a disabled child who is 17 or younger, household family income and resources are taken into consideration in addition to his or her own income or resources (which will always be taken into consideration regardless of age).
Unfortunately, child support is considered unearned income by Social Security and will reduce the amount of SSI a disabled child will receive every month. This places the custodial parent in a false dilemma of having to decide to receive less of one income stream or the other, often when they are already in a position of significant financial stress. This situation can be avoided with the use of a SNT.
A SNT can be created specifically to receive child support payments directly from the obligor parent as part of the child support order. This will not only protect those assets for the disabled child, but will allow the child to receive the full amount of SSI he or she is entitled to receive. Typically, the custodial parent is the trustee of this type of special needs trust and will make the decisions on when and how to use the trust assets (within certain rules). The funds can be used immediately or the funds can be left to accumulate without impacting government benefits.
Special needs trusts are an invaluable tool for people with disabilities and the drafting of a special needs trust should be done by an attorney who focuses on special needs planning. It is important for the family attorney to consult with a special needs law attorney to help their client preserve and maximize benefits for the disabled child. For more information or to make an appointment, please contact my office.