For individuals with disabilities, government assistance programs like Medi-Cal, Supplemental Security Income (SSI), Social Security Disability Insurance (SSDI), and Childhood Disability Benefits (CDB) serve as essential lifelines. These programs provide crucial financial support and access to healthcare services. However, without proper planning, individuals risk losing eligibility for these benefits due to well-intentioned gifts, inheritances, or mismanagement of assets. In this guide, we’ll explore how effective estate planning and special needs planning can protect these vital income streams, ensuring a secure financial future for individuals with disabilities.
Understanding Government Benefits
Before we get started, let’s review some of the more common public benefits that people with disabilities in California depend on.
Medi-Cal
Medi-Cal is California’s Medicaid program. It offers healthcare services to low-income individuals, including those with disabilities. Eligibility for Medi-Cal is means-tested, based on strict income limits (and formerly asset limits). It provides a range of medical services, including doctor visits, hospital care, prescription drugs, and long-term care services. For many, Medi-Cal is the only affordable option for necessary medical treatment and support.
Supplemental Security Income (SSI)
SSI is a federal program that provides monthly payments to adults and children with disabilities who have limited income and resources. The eligibility criteria include stringent income and resource limits, as the program aims to assist those with significant financial need. SSI benefits help cover basic needs such as food, clothing, and shelter, making it a critical source of support for many individuals with disabilities.
Social Security Disability Insurance (SSDI)
SSDI provides benefits to individuals who have worked and paid Social Security taxes but are now disabled and unable to work. Unlike SSI, SSDI is not means-tested; eligibility is based on work history and the severity of the disability. SSDI recipients become eligible for Medicare after 24 months of receiving benefits, offering access to essential healthcare services. SSDI helps replace a portion of lost income due to disability, providing financial stability.
Childhood Disability Benefits (CDB)
CDB, formerly known as Disabled Adult Child (DAC) benefits, are available for adult children with disabilities that began before age 22. These benefits are based on a parent’s Social Security earnings record. If a parent is retired, disabled, or deceased, their adult child may receive benefits if they meet the disability criteria. CDB can provide long-term financial support, especially if the individual has never been able to work due to their disability. In addition, after receiving CDB benefits for 2 years, the child can qualify for Medicare benefits.
Medicare
Medicare is a federal health insurance program primarily for people aged 65 and older, but it also provides coverage to individuals under 65 who have certain disabilities. Those who have been receiving SSDI benefits for at least 24 months become eligible for Medicare, gaining access to essential healthcare services including hospital care, medical services, and prescription drugs.
The Importance of Estate Planning
Without proper estate planning, an inheritance or financial gift can inadvertently disqualify a person from needs-based programs like Medi-Cal and SSI. Effective planning ensures that assets intended for a loved one with disabilities enhance their quality of life without disrupting their eligibility for essential benefits.
Key reasons to plan include maintaining benefit eligibility by remaining below income and asset thresholds, enhancing quality of life by providing supplemental needs, and ensuring long-term financial security for your loved one. Estate planning brings peace of mind, knowing that your loved one’s future is secure.
Special Needs Trusts: A Key Tool
A Special Needs Trust (SNT) is a legal arrangement that holds assets for the benefit of a person with disabilities without affecting their eligibility for government benefits. SNTs are crucial in preserving access to programs like Medi-Cal and SSI while providing additional financial support.
At Cookman Law, we specialize in creating Special Needs Trusts and customized estate plans for complex situations. Many of our clients with disabilities depend upon various public benefits, and we are experienced in helping them preserve those benefits.
First-Party (Self-Settled) SNT
This type of trust is funded by the beneficiary’s own assets, such as personal injury settlements or inheritances received directly. The trust allows the individual to retain access to government benefits by excluding these assets from resource and income calculations. However, upon the beneficiary’s death, any remaining assets may be used to reimburse Medi-Cal for services provided during the beneficiary’s lifetime.
Third-Party SNT
Funded by assets from parents, grandparents, or other third parties, a third-party SNT does not require Medi-Cal payback upon the beneficiary’s death. It offers more flexibility and is often used in estate planning to provide for a loved one with disabilities. Assets in this trust can be used to enhance the beneficiary’s quality of life without affecting benefit eligibility.
Pooled Trust
Managed by non-profit organizations, pooled trusts combine assets from multiple beneficiaries for investment purposes while maintaining separate accounts for each individual. This option can be beneficial for those who may not have enough assets to justify establishing an individual SNT. Pooled trusts offer professional management and can be a cost-effective solution. (Please note that Cookman Law does not handle pooled trusts, but we can offer referrals.)
Protecting Medi-Cal and SSI Eligibility
Eligibility for Medi-Cal and SSI is subject to strict income and resource limits. For SSI, the resource limit is $2,000 for individuals, meaning that if an individual’s assets exceed this amount, they may lose their benefits. Medi-Cal’s asset limit was eliminated in 2024, but it does have an income limit of 138% of the Federal Poverty Level.
Assets held in an SNT are not counted toward these resource and income limits, which helps to maintain eligibility. Funds in the trust can be used for non-basic necessities, enhancing the beneficiary’s quality of life. This includes expenses that government benefits do not cover but are important for the individual’s well-being.
Allowable Expenses from an SNT include:
- Education and Training: Tuition, books, and supplies for educational programs.
- Healthcare Costs: Out-of-pocket medical and dental expenses not covered by insurance.
- Transportation: Costs including vehicle purchase, maintenance, and modifications.
- Personal Care Services: Hiring personal attendants or caregivers.
- Recreational Activities: Vacations, movies, concerts, and other leisure activities.
- Personal Items: Clothing, electronics, furnishings, and other personal goods.
By using the SNT for these purposes, the beneficiary can enjoy a higher quality of life without risking their essential benefits.
Preserving SSDI and CDB Benefits
While SSDI and CDB are not means-tested and do not have passive income or asset limits, proper planning is still essential. Mismanagement of funds or assets can impact overall financial well-being and access to other programs. Additionally, SSDI recipients become eligible for Medicare after 24 months, so coordinating healthcare coverage is important.
Effective planning ensures seamless integration with other benefits and can help manage healthcare costs and other expenses not covered by SSDI or Medicare. Coordinating an SNT with SSDI and CDB can provide additional resources without affecting these benefits, allowing for comprehensive support.
Implementing an Effective Estate Plan
To protect income streams and benefits for a loved one with disabilities, consider the following steps:
- Establish a Special Needs Trust
Work with an attorney experienced in special needs planning to establish an SNT tailored to the beneficiary’s unique needs. The trust should be carefully drafted to comply with legal requirements and to ensure it does not disqualify the beneficiary from receiving government benefits. The attorney can help determine which type of SNT is appropriate and guide you through the process.
Our team can help you with this process!
- Coordinate Beneficiary Designations
Update all legal documents, including wills, trusts, and powers of attorney, to reflect your current intentions. Ensure that beneficiary forms for life insurance policies, retirement accounts, and other assets name the SNT rather than the individual directly. This prevents unintentionally leaving assets to the disabled beneficiary that could jeopardize benefit eligibility. Regularly reviewing these documents helps maintain alignment with your estate plan.
- Educate Family and Friends
Inform relatives and friends about the importance of directing any financial gifts or inheritances to the SNT instead of giving directly to the beneficiary. This helps prevent unintentional loss of benefits due to exceeding income or resource limits. Open communication ensures everyone understands how to support your loved one effectively.
- Consider ABLE Accounts
Achieving a Better Life Experience (ABLE) accounts are tax-advantaged savings accounts for individuals with disabilities. Funds in an ABLE account, up to $100,000, do not count toward SSI resource limits. The funds can be used for qualified disability expenses such as education, housing, transportation, and healthcare. ABLE accounts can complement an SNT by providing the beneficiary with more control over some funds.
- Regularly Review and Update the Plan
Life changes such as marriage, divorce, births, or deaths may necessitate updates to the estate plan. Additionally, laws and regulations regarding government benefits can change. It’s important to stay informed and consult with professionals regularly to ensure the plan remains effective. Periodic reviews help adapt the plan to evolving circumstances.
Choosing the Right Trustee
Selecting the appropriate trustee is crucial for the effective management of an SNT. The trustee is responsible for managing and investing the trust assets, making distributions in accordance with the trust terms and legal requirements, and ensuring compliance with government regulations.
Trustee Options
- Family Member: A family member may offer personal insight into the beneficiary’s needs but may lack expertise in trust management and legal compliance. They may be more attuned to the beneficiary’s preferences but might need support in managing the trust properly.
- Professional Trustee: An individual professional trustee, called a private professional fiduciary, or a corporate trustee, such as a bank or trust company, can have expertise in managing trusts and ensuring compliance but may lack personal knowledge of the beneficiary and may charge higher fees. They provide professional management and can navigate complex regulations.
- Co-Trusteeship: Appointing co-trustees can combine the strengths of both a family member and a corporate trustee, balancing personal insight with professional expertise. This arrangement can provide comprehensive support for the beneficiary.
Carefully consider the trustee’s ability to fulfill their duties, including financial management skills, understanding of legal obligations, and commitment to the beneficiary’s best interests.
Alternatively, you may appoint a professional fiduciary as the trustee and name a trusted family member as a trust protector. The trust protector’s role is to oversee the trustee’s actions and ensure they align with the trust’s terms and the beneficiary’s best interests. This arrangement combines professional management with personal oversight, providing an additional layer of security and ensuring that the grantor’s intentions are honored.
Understanding Distribution Rules
Distributions from an SNT must be carefully managed to avoid negatively impacting the beneficiary’s eligibility for government benefits.
Permissible Distributions
Funds can be used for educational expenses, healthcare costs not covered by insurance, personal items like clothing and electronics, and recreational activities. These expenditures enhance the beneficiary’s quality of life without affecting benefit eligibility. The trustee must ensure that distributions are made directly to service providers or vendors, not to the beneficiary.
Distributions to Avoid
Providing cash directly to the beneficiary can reduce SSI benefits or even disqualify them, and can lead to a required premium for Medi-Cal (called a “Share of Cost”). Additionally, payments for food and shelter may reduce SSI benefits by up to one-third. It’s essential to consult with a knowledgeable attorney or trustee to ensure distributions are made appropriately and in compliance with regulations.
Navigating Legal and Regulatory Compliance
Maintaining compliance with legal and regulatory requirements is vital to protect the beneficiary’s benefits.
Regular Reporting
Trustees must maintain detailed records of all transactions and may need to provide accountings to government agencies. Accurate record-keeping ensures transparency and compliance with legal obligations. Regular reporting may be required by the Social Security Administration or other agencies.
Staying Informed
Laws and regulations governing Medicaid, SSI, and other benefits can change. Regular consultations with legal professionals help ensure the trust remains compliant and effective in protecting benefits. Staying informed about policy changes can prevent unintended consequences.
We regularly publish updated videos on our YouTube channel regarding changes in these laws and regulations. We also send information about updates in our newsletter – but the best way to make sure your plan stays up to date is to meet with one of our attorneys.
Protecting income streams and health insurance like Medi-Cal, SSI, SSDI, CDB and Medicare for individuals with disabilities requires diligent planning and informed decision-making. Utilizing Special Needs Trusts, coordinating estate plans, and staying compliant with regulations can safeguard these vital benefits. Effective estate and special needs planning not only preserves eligibility but also enhances the quality of life for your loved one.
Take Action Today
Consult with an experienced estate planning attorney to create a comprehensive plan tailored to your family’s needs. Protecting your loved one’s financial future starts with informed planning. Don’t wait until it’s too late—early action can provide peace of mind and security.
We’re here to help you navigate the complexities of estate and special needs planning. Contact us today to schedule a consultation.