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States Differ from Federal Guidelines in Special Needs Trust Distributions
As the parent of a child with a disability, it is important to manage your child's financial needs both during childhood as well as planning for the financial needs into adulthood. For many disabled children, there are a variety of financial trust options depending on the source of funding and what your child's long term financial circumstances may require.Special Needs Trusts, Differences and Life Insurance
When considering financial vehicles for your special needs child, you may want to consider the use of a Third-Party Special Needs Trust. Because many disabled children are eligible for Social Security Income, SSI, as well as Medicaid benefits, the Special Needs Trust provides an avenue by which money from a third party can be deposited and used for your child's non-covered medical and care expenses. The advantages to the Special Needs Trust lie in the ability to use the trust and secure the funds without affecting eligibility for SSI and Medicaid benefits.
There are, however, some issues that have recently been addressed with Special Needs Trusts and the imposition of states when attempting to restrict the distribution of the funds. As the parent of a disabled child, it is important to manage the SNT distributions carefully as, in many cases, if these distributions are not well managed, the state may consider them benefits that will disqualify SSI or Medicaid eligibility.
Two of the most common issues that affect SNT distributions and the state's consideration for eligibility into SSI and Medicaid, involve the payment for a home and the payment for a vehicle. Under federal guidelines, if the SNT owns a home that the disabled child lives in, and payments for that home are made from the SNT, this would not disqualify the SSI and Medicaid eligibility. However, some states are choosing to consider this type of payment a restricted distribution and reducing the SSI benefits by the amount withdrawn. There are additional issues affecting how payments are made when other family members live in the home with some states even requiring documentation that other family members pay rent.
Vehicle ownership is another area of concern for your disabled child. While federal guidelines permit the ownership of one vehicle, without regard to value, there are some states that require proof the vehicle is modified for disability use. Again, with proper documentation, you can manage around the issues of the SNT distributions when states differ in their eligibility considerations.
Third-party Special Needs Trusts are a vital part of the care and financial support for disabled individuals. For individuals who are considering the distribution of SNT funds, it is important to understand what the federal guidelines are and then how your particular state may differ in those guidelines.
Exceptions to OBRA '93 & the Special Needs Child's Trust
For persons with disabilities, there are many aspects of financial care that must be considered starting from birth. As the parent of a child with special needs, it is important to consider the vast array of financial tools that may be made available to you especially those involving 'third-party' trusts. These types of financial tools are especially important should your child earn income or accrue additional income from a windfall of some type in the future.
With the advancement of the Omnibus Budget Reconciliation Act of 1993, many parents became confused about the management of the financial needs for children with special needs. While the OBRA '93 regulations limit the type of trusts that can be used and when funds and assets must be considered when applying for SSI or Medicaid, there are exceptions to this rule. For families who care for a child with special needs, who suddenly accrues some type of financial gain, these exceptions are vital to the child's trust establishment.
For your special needs child, there are three types of financial trusts you can establish that will protect your child's income and assets and still provide your child with the eligibility for Medicaid or SSI. When considering what to do with the windfall your child has received, you will want to meet with an attorney or financial counsel or who specializes in this type of financial arrangement. The three exceptions, or trusts, to be considered will include the d4A, known as the "payback trust", the d4B, known as the "disability income trust", or the d4C, known as the "pooled trust". For these types of trusts, all classified as permissible OBRA '93 trusts, your child's current eligibility for Medicaid or SSI should not be affected.
There is an issue that may arise if your child is considered disabled and over the age of 18. While a financial counselor or attorney should go over these concerns with you, it is important to know that your child's earned income level must generally be below $900.00 per month to continue to be eligible for the OBRA '93 trusts and exceptions. In addition, there must be sufficient documentation to support disability and that the disability is continuous and ongoing. Your attorney should provide you with a general guideline as to how best to keep this type of disability status in place over the long term.
Trusts and other financial tools are important aspects of care for persons with disabilities. Because Medicaid and SSI benefits can be adversely impacted by documented income or windfall amounts, establishing the right type of OBRA '93 trust will be important to your child's long term financial security. When considering your financial options, be sure to ask a financial counselor about the three exceptions to the Omnibus Budget Reconciliation Act of 1993.