Financial & Legal Planning
This section provides an overview of government benefits and the issues involved in financial and legal planning. It is not legal advice. Families need to consult with attorneys and financial professionals.
Considering Two Generations
Families who have a member with a disability face a more complex financial future than the average family. In addition to planning for their own retirement and possible need for long-term care, parents realize that their child with a disability will also likely require support services for his or her lifetime. Many parents will continue to provide some financial support to their adult children with disabilities.
Providing private financial support to a child with disabilities presents two important hazards. The first is jeopardizing a child’s eligibility for some benefits. The second is depleting resources that parents may need to maintain their own long-term quality of life.
The nature of planning for financial security has changed. A number of factors have contributed to this change, including:
- The increased number of people who work after the “normal” retirement age of 65;
- The shift in risk from employer to employee in retirement plans based on contributions such as 401(k)’s
- The increased cost of health care.
The traditional wisdom about planning for retirement has used the image of a “three-legged stool,” representing Social Security, savings, and pensions. The American Association of Retired Persons, in its 2001 report on economic security, suggests that this approach is now inadequate, and people should instead imagine four “legs”: Social Security, savings and pensions, earnings, and health insurance. Parents need to keep all these components in mind when planning ahead for themselves and their children.
One of the first steps in a family’s legal planning is to consider legal guardianship for a child with disabilities. A child becomes his or her own legal guardian at the age of majority, regardless of a disability. In Ohio, the age of majority is 18. Parents or other family apply to the Probate Court if they feel their family member should have a legal guardian. Regulations concerning guardianship are determined by the state of residence, and so vary from state to state. The probate courts in Ohio are operated by each county, so the process varies somewhat based on where one lives even within the state.
A guardianship is a court-approved legal relationship between a competent adult and a minor child or a legally incompetent adult. The probate court appoints a guardian after an application is filed. The application must include an expert evaluation, completed by a physician, psychiatrist, or licensed psychologist, describing the person’s mental and physical condition. A court investigator completes an investigation that includes an interview with the individual for whom a guardian is being requested. A probate judge then conducts a formal hearing to determine if a guardianship is needed and to ensure that the guardian is suitable and understands his or her responsibilities.
The court supervises guardianship. Guardians must file a report with the court at regular intervals as determined by the court. In the case of a guardian of estate (see below), a written accounting must be filed. The court can investigate guardians to be sure they are functioning properly and can remove a guardian at any time if it is in the best interest of the individual. A motion can be filed to terminate a guardianship.
There are several different types of guardianship:
- Full or Plenary Guardianship – The guardian has authority over all aspects of the person’s life.
- Guardian of Estate – The guardian only has authority over financial matters.
- Guardian of Person – The guardian has authority over all matters except those involving finances.
- Emergency Guardianship – The court appoints a guardian on short notice. Courts are usually reluctant to appoint emergency guardians.
- Interim Guardianship – The court appoints a temporary guardian because the former guardian is no longer available
- Limited Guardianship – The court can appoint a guardian for a period of time or for a specific purpose when a person is both incompetent and has a need. This type of guardianship may be used only for medical or placement purposes, and the person would retain rights in all other areas. It is also sometimes used for approving behavior interventions or psychotropic medication.
- Testamentary – The parents name this type of guardian in a will. The Probate Court does not have to honor the parent’s wishes but usually will appoint the person named if the child is under the age of 18. For people over the age of 18, the guardian named must file an application.
Other important facts about guardianship:
- A person with a full guardianship or guardian of person cannot get married without the permission of the guardian.
- The Ohio Attorney General has ruled that the appointment of a guardian may restrict a person’s right to vote depending on the nature of the guardianship.
- Some courts prohibit co-guardianships. If permissible, it may be easier if only one person serves as guardian.
- Parents of an adult child can nominate a successor guardian in their will. The court gives weight to individuals who have been nominated.
- If no family member can serve as guardian, an Ohio agency called Advocacy and Protective Services Incorporated, or another similar agency, can act as guardian.
- A person who applies as guardian of estate (person and estate or estate only) must obtain a bond. The Probate Court will not appoint a guardian without one. The bond must be in an amount twice the assets of the person for whom the guardian is appointed.
ALTERNATIVES TO GUARDIANSHIP
Power of Attorney:
A Power of Attorney is a legal document that allows one person to perform specific legal acts for another person. An individual has to agree to the Power of Attorney and can revoke it at any time. As one wit explained, “Creating a Durable Power of Attorney is like giving a friend the keys to your car and asking them to drive you where you want to go. If you do not like the way they drive or where they take you, you can always get your keys back.” Because a person has to give consent, Power of Attorney cannot be created for a person with a disability unable to understand the consequences of allowing someone else to make decisions for him or her.
A Nondurable Power of Attorney expires when a person becomes incompetent. A Durable Power of Attorney states an intent that it remain in effect in the event of the grantor’s incapacity or on being adjudged incompetent. A Durable Power of Attorney for healthcare can be used to authorize healthcare decisions in the event of incapacitation.
A conservatorship is a voluntary trust relationship using guardianship laws and procedures as its basis, in which one person (known as a conservator) acts with court supervision for a mentally competent, but physically disabled adult. A person with a disability may request the probate court to appoint a conservator of his or her choice. The conservator of person, estate, or both, can be assigned for a specific or indefinite period of time. The person with a disability decides who will serve and what property and powers will be included in the conservatorship. The person with a disability can also unilaterally terminate the conservatorship with a written notice to the court.
A representative payee can be given the responsibility of managing federal government funds (SSI, SSDI, or veteran’s benefits) of individuals unable to do this for themselves. The payee is appointed by the Social Security Administration or Veteran’s Administration. A form can be obtained from the local Social Security office to apply to be a representative payee. The checks go directly to the payee, and records must be kept to show that the money is being spent only on the adult with disabilities.
Many parents struggle with the decision to become guardian of their child with a disability after the age of 18. The concern is that assigning a guardian results in the loss of civil rights. The key is to use the least restrictive option available. For example, if a person’s only significant income is SSI, a representative payee should be able to handle all financial needs rather than a guardian of estate. If a person can make routine medical decisions but finds it difficult in a medical crisis to understand the ramifications of decisions about care, a medical limited Power of Attorney might be useful. A limited guardianship may be necessary if a person with a disability inherits money. A limited guardianship terminates when permanent arrangements have been made to handle the money. Parents should talk with professionals familiar with their child as well as family members when making the decision about guardianship. They should also consult an attorney with experience in guardianships.
Government Benefits and Family Contributions
Of serious concern to parents is their child’s continued eligibility for benefits. A parent’s legal obligation to provide support for a child generally ends at the age of majority (18 in Ohio) with some exceptions, such as when a divorce order extends the obligation. Some people with disabilities are able to work and to be financially self-supporting. Others have access to the proceeds of legal settlements. Most people with disabilities, however, will not be able to earn enough money to maintain a reasonable lifestyle. For those individuals, government benefits—publicly funded programs that provide medical coverage and residential supports—are a means of support. Cash benefits are also available but are quite small and force individuals to live well below the poverty level.
Parents should try to maintain their child’s eligibility for benefits, particularly Supplemental Security Income (SSI) and Medicaid. Unless a family’s financial situation is such that they will be able to provide for housing, support services, and medical needs for a family member’s lifetime, a time will come when these benefits are needed. Eligibility for Medicaid is especially important, because most of the funding for residential support services is tied to Medicaid. Medicaid is means-tested. That is, only those with limited income and assets/resources are eligible. If a family provides for an adult child’s basic needs, they may jeopardize his or her eligibility for government benefits. Assisting with supplemental needs, however, can significantly enhance the child’s quality of life and will not jeopardize benefits.
Families should consult professionals experienced in these complex areas. The information offered here is intended only to explain the available benefits and suggest how to apply for and maintain these benefits. Each family’s situation will be unique. Making sound plans will require research, significant planning, and legal advice.
What Happens if Benefits are Lost?
A person receiving SSI or Medicaid benefits must report to the Social Security Administration (SSI or SSDI) or the Department of Job and Family Services (Medicaid), within ten days, any other money received (earnings, inheritances, etc.). This amount is treated as income in the month that it is received, and the person may lose eligibility for SSI for that month.
In order to preserve eligibility for benefits, the money earned or received can be spent, but it must be spent on non-countable assets, such as a home, a car, a prepaid irrevocable burial account, clothing, and household goods up to a certain value. It is prudent to check the list of non-countable resources for specific types of benefits. Assets received may also be able to be invested in a Medicaid Payback Trust. This option needs to be done quickly and with the help of an attorney familiar with special needs trusts. Excess income and resources can disqualify an individual from eligibility for SSI and Medicaid. If those benefits are paying for housing and support services for a person with a disability, the disqualification can jeopardize his or her lifestyle.
The best financial plan for the future will vary depending on each family’s situation. The one universal piece of advice is to plan ahead. Investigating and planning now will avoid the need to make decisions during a crisis later in life.
Here are a few things that parents have learned from experience about public benefits that may prevent problems:
- The best way to find out if a person is eligible for a benefit is to apply for it.
- Parents should know what income and changes need to be reported to the government, how the reporting is done, and when reporting is required for each benefit that is received.
- If a benefit is denied on the first application, requesting a review is often helpful.
The most common benefits available to a person with a disability are listed below.
Social Security Benefits:
The primary cash benefits paid to individuals come from federal programs administered through the Social Security Administration (SSA). These benefits include Supplemental Security Income (SSI), Social Security Disability Income (SSDI), and Social Security Retirement, which includes benefits for dependents and survivors. There are some differences in SSI eligibility requirements and benefit amounts from state to state. A person must be a US citizen or qualified alien and live in the US (or a child living with parents in military service or a student studying abroad) to be eligible to receive cash benefits from the SSA.
To apply for benefits, a person should call 800-772-1213. A friend or family member can assist an individual who needs help with the application process. The application is completed electronically by an SSA representative, but the applicant will need to supply some information, such as proof of age, documentation of disability, income information, and so on. The process to determine eligibility usually take three to four months.
SSA conducts redetermination reviews for each beneficiary periodically. The frequency varies and can range from as soon as three months after benefits are approved to every six years. Reviews are also conducted for some people when a child receiving SSI turns 18 and when a change in income, resources, or living arrangements is reported. When a redetermination review is conducted, SSA will inform the beneficiary and request a written form or a phone or personal interview. The beneficiary must respond to the questions within 30 days.
Once eligibility for benefits is established, SSA must be informed of any changes affecting eligibility. Such changes include income, resources, living arrangements, address, marital status, eligibility for other benefits, admission or discharge from an institution, medical improvement, or the death of another person living in the household. Changes need to be reported within ten days.
How the SSA defines income:
Earned Income – money received from wages or earnings from self-employment;
Unearned Income – money that is not earned income, i.e., money received from such sources as
Disability benefits, unemployment benefits, interest income, and cash from friends or family;
In-Kind Income – food, clothing, or shelter received that is either free or less than their fair value; and
Deemed Income – part of the income of a person’s spouse or parent with whom the person lives, used to compute the benefit amounts.
Representative Payee Program:
In certain circumstances, the Social Security Administration provides for the payment of SSI and SSDI benefits to a person other than the beneficiary. A representative payee is needed if the beneficiary is under the age of 18 (although SSA will occasionally pay benefits to an older child when a payee is not readily available) and when the beneficiary has been determined to be legally incompetent by the court. A payee can also be appointed if a person is unable to manage or direct the management of his or her cash benefits. A representative payee must make an annual accounting of how money was spent to SSA and the beneficiary.
Someone concerned about the welfare of an individual (a guardian, family member, or friend) can be a representative payee. An organization, such as a residential provider agency or social-service agency, can also serve. The nominated representative payee must make an application with the Social Security Administration. The SSA will investigate the nominated representative payee prior to making the arrangements. Information that can be used in the determination includes court documents, medical evidence indicating a physician’s opinion about the ability to manage benefits, or statements of friends or relatives who have observed the beneficiary’s inability to manage benefits.
When an individual is denied Social Security or SSI benefits and does not agree with the decision of the Social Security Administration, he or she has a right to appeal. A request for appeal must be made in writing within 60 days of the receipt of the denial letter. A person can ask the Social Security office, a lawyer, family member, or friend for help with an appeal.
There are four levels of appeal:
- Reconsideration: This is a complete review of the claim by someone other than the people involved in the first decision. Reconsideration can be requested by completing the appropriate form available at the local Social Security office. SSA will completely review all of the originally submitted information as well as any new information. Most reconsiderations involve a review of the files and do not require an applicant to be present.
- Hearing by an Administrative Law Judge: If an individual is still in disagreement after a reconsideration, he or she can ask for a hearing. It is best for a person to attend the hearing, but he or she can request in writing not to attend. A representative can also attend. The individual and their representative can look at the information in the SSA file and submit new information if available. The individuals and witnesses may be questioned by the judge, representative, or individual. After the hearing, SSA will send a copy of the judge’s decision to the individual and his or her representative. According to the Bazelon Center for Mental Health Law, more than half of all denials are reversed by the Administrative Law Judge. (Oct. 1997)
- Appeals Council: If an individual asks, the social security appeals council will review any claims denied at hearing. The council can either decide the case itself or send it back to an Administrative Law Judge.
- If an individual disagrees with the appeals council’s decision or if the appeals council declines to review the case, a lawsuit may be filed in a federal district court.
If an individual is appealing ineligibility or a reduction in SSI payments, he or she may be able to continue receiving benefits during the appeal. Within ten days of receiving the denial letter, SSA must be informed of the appeal. If the appeal is denied, any benefits paid during the appeals process may have to be repaid.
Special rules for SSI and SSDI benefits are designed to encourage employment and self-support. In some situations, a person’s benefits may continue after employment begins, or a person may continue to be eligible for Medicare health coverage for a period of time, even after cash benefits are discontinued. If a person reapplies for benefits after employment, an expedited reinstatement process can allow benefits to begin again, in some situations, even without a new application. Some resources and income are not counted when they are used for self-sufficiency. These can include the expenses paid for items or services related to the disability that are needed to work, or resources set aside as part of a Plan to Achieve Self-Sufficiency (PASS). More information is available about work incentives from the Social Security Administration.
Supplemental Security Income (SSI):
- SSI, a federal program, provides income to people who are aged, blind, or disabled. SSI is not Social Security. The funds are from general revenue and are based on extreme financial need rather than earned through payroll taxes from previous employment, like Social Security.
- Payments can be made to adults or children.
- The SSI benefit rate is the limit for the monthly payment, and it changes each year. The federal rate for 20015 is $733 ($1,100 for married couples). The benefit amount for each person is reduced by any countable income. Some states, but not Ohio, supplement this amount.
- Eligibility for SSI is based on disability and financial need and can be affected by an individual’s living situation. An individual does not need to have paid into the Social Security fund to qualify.
- Disability for adults is defined by the inability to engage in substantial gainful activity due to any medically determinable mental or physical impairment, which can be expected to result in death or last no less than 12 months.
- A person is generally considered able to engage in substantial gainful activity if he or she earns more than $1,090 per month (for 2015).
- To determine if a person qualifies as disabled, the Social Security Administration (SSA) will send all evidence of disability (medical reports, etc.) to the state’s Disability Determination Service, where a disability examiner and medical or psychological consultant determines eligibility.
- Financial need is determined by a review of income and resources.
- The resource limit for SSI is $2,000 ($3,000 for a married couple) in 2015. Resources include anything that a person owns (bank accounts, real estate, stocks, etc.). Some resources are not counted in considering eligibility for SSI, including a person’s home, a car (with some limits), burial plots and up to $1,500 in burial funds, and life insurance policies with a face value of $1,500 or less.
- The income limit varies by state. Income can include any earned or unearned income as well as in-kind income and deemed income (see definitions above). The following income is not counted: the first $20 of most income received in a month, the first $65 earned each month from working and half of the amount earned over $65, food stamps, and most home energy assistance programs.
- SSI benefits may vary depending upon where a person lives. Individuals who live in the home of another person and who pay less than their full share of expenses will have a reduction in SSI of about one-third of their benefit. Parents’ income will be considered for children less than 18 years of age when they live with their parents. Individuals who live in Medicaid institutions (ICF/ID, for example) and are eligible for SSI receive only $30 per month.
- Disability for adults is defined by the inability to engage in substantial gainful activity due to any medically determinable mental or physical impairment, which can be expected to result in death or last no less than 12 months.
Social Security Retirement & Disability Benefits (SSDI):
- Social Security Retirement is the cash benefit that workers who have paid Social Security tax (FICA) receive when they retire. The cash benefit is based on the average earnings, the number of years a worker paid into Social Security, and the age at retirement (earnings record).
- Social Security Disability Income (SSDI) provides benefits to people who are disabled and who have paid Social Security tax (FICA).
- When a qualified worker (one who has paid into the Social Security system) becomes eligible for benefits (retires, becomes disabled, or dies), his or her child and spouse become eligible for cash benefits based on the worker’s earnings record. These benefits are referred to as dependent benefits when the parent is on disability or has retired, and survivor benefits when the parent is deceased.
- Children of a qualified worker may continue to be eligible for dependent or survivor benefits after the age of 18 if they are disabled. The criteria to be considered disabled for these benefits are similar to those for SSI. Married children are not eligible for dependent or survivor benefits.
- The amount of Social Security dependent or survivor benefits will depend on the earnings record of the worker. Most other income does not affect Social Security payments.
SSI and Social Security Benefits:
The amount of SSI received will not affect the amount of Social Security benefits (dependent, survivor, or SSDI). Social Security benefits are, however, countable income for determining the level of SSI benefits. This means that SSI will be reduced by the amount of Social Security benefits (less a $20 per month general exclusion for unearned income). For example, Jane is receiving $545 per month from SSI when her father retires. She is eligible for a Social Security dependent benefit of $300 per month based on her father’s record. She will now receive $300 from Social Security and $265 from SSI. If the amount of Jane’s Social Security dependent benefit were $600 per month, she would stop receiving a benefit from SSI and would receive the full $600 from Social Security.
Other Retirement Plans:
Other public retirement programs may include provisions for children who have a disability. These programs include Veteran’s Administration, railroad retirement, public employee retirement, and state teachers’ retirement. Parents should check with any agency from which they receive benefits to see if their child could also receive benefits.
Food stamps are available based on financial need. People who receive SSI may also be eligible for food stamps. Applications are available at the local Social Security office. The Social Security office does not always take food stamp applications, which may have to be taken to the local Department of Job and Family Services office.
Health Care Benefits:
- Medicare is a health insurance plan for people 65 years of age or older, people in end-stage renal disease, and for some people with disabilities. People who work usually pay into Medicare and become eligible when they turn 65. People with a disability or under the age of 65 are automatically enrolled in Part A of Medicare when they have received Social Security or Railroad Retirement Board disability benefits for 24 months. Benefits begin on the first day of the 25th month, and the card is mailed prior to the effective date.
- There are two parts to Medicare. Part A is hospital insurance, and Part B is medical insurance. There is a premium for Part B and, in some cases, for Part A.
- Part A covers inpatient hospital care, skilled nursing facilities, and some home health care. There is no premium for people who paid Medicare tax for a certain period of time. Others may be able to buy part A. There is no premium for people over the age of 20 who are eligible for SSI.
- Part B covers doctor’s services, outpatient hospital care, and other services not covered by Part A, such as occupational and physical therapy. Everyone has to pay a monthly premium — $104.90 per month in 2015. When a person receives Social Security benefits, the premium is deducted from the monthly benefits check.
- Assistance in paying the Medicare premium is available for people with low incomes. The most common is Qualified Medicare Beneficiary (QMB) and Specified Low-Income Medicare Beneficiary (SLMB). In order to qualify for QMB, a person has to meet Medicaid eligibility requirements and have income and resources within a certain level. Application for QMB and SLMB is done automatically with Medicaid application and re-determination.
- Enrollment in Part B is optional. A person covered by an employer or union-sponsored medical plan can wait to enroll in Part B when the plan ends. A person not enrolled in another medical plan who has previously chosen not to enroll in Part B can still sign up during a general enrollment period (Jan 1st – Mar. 31st). In this case, the premium for Part B can go up 10% for each 12-month period that the person was not enrolled or was under another plan.
- Medicare does not cover all medical expenses. There are deductibles and co-payments, and some services are not covered at all.
- The Social Security Administration administers Medicare benefits. People who need to apply or make changes can go to their local Social Security office.
Medicaid is arguably the most important benefit available to people with developmental disabilities. It is also the most complicated. The Medicaid and Medicare programs began in 1965. Medicaid’s main purpose was to provide federal funds to assist states in providing basic health care to people receiving public assistance, including low-income families and children, seniors, and people with disabilities. Originally, Medicaid was tied closely to the welfare system. The system has undergone many changes over the years, making funding for services available to more people. Medicaid is jointly funded and administered by federal and state government. The requirements are established in Title XIX of the Social Security Act. The Center for Medicare and Medicaid Services (CMS), formerly Health Care Finance Administration (HCFA), is the federal department that issues regulations and oversees state Medicaid operations. The federal government establishes key requirements that the states must follow. Each state then develops a “state plan” that establishes the scope of the state’s Medicaid program. If a state meets the federal requirements, then the federal government pays a percentage of the amount the state pays to Medicaid beneficiaries. The share varies, depending upon a state’s per capita income. Typically, the Federal Government pays 60%, and the state or local share is 40%.
Medicaid benefits can provide healthcare services (doctor visits, prescription medications, hospital care, etc.) and long-term care services (nursing homes, intermediate care facilities, and home and community services). Originally there was an institutional bias to Medicaid long-term services. In order to receive institutional services funded by Medicaid, a person had to live in a licensed facility (nursing home or ICF/ID). In 1981, Congress enacted the Home and Community-Based Services (HCBS) Waiver to make long-term services available to people who need services but want to live in their own home in the community.
A Medicaid Waiver gives states the ability to waive certain key requirements of the federal Medicaid regulations. In this way, states may customize programs around the needs of people with a particular condition (rather than offering the service to everyone eligible for Medicaid). States are also able to limit the number of people for whom they will provide Waiver services. Hence, a state usually has a limited number of Waiver “slots” for which beneficiaries have to apply. Because the Waiver programs are so popular, more people typically apply for Waivers than there are slots available.
- Eligibility for Medicaid is based on financial need and a person’s membership in an eligible group. States have the flexibility to widen eligibility beyond the mandatory groups. In Ohio, three basic groups are covered. Children and pregnant women with limited incomes are covered under Healthy Start or Healthy Families, and families with children that participate in Ohio Works First are automatically covered. Aged, Blind and Disabled (ABD) benefits cover people aged 65 and over and individuals of any age who are disabled, including legally blind.
- In order to be considered disabled, a person must provide proof of a mental or physical impairment, lasting 12 months or longer, that prohibits work. Generally, a person who qualifies as disabled for SSI will also qualify for Medicaid.
- Financial need is determined by considering a person’s income and available resources.
- If a person’s income is low enough to qualify for SSI, he or she will usually qualify for Medicaid.
- A person cannot have more than $1,500 in resources (bank accounts, CDs, stocks, etc.).
- The specific rules for Medicaid eligibility are determined by the state. In some states, the rules are the same as for SSI, and application is automatic when a person applies for SSI. In a few states, including Ohio, the rules are different than for SSI, and a separate application must be made.
- The best way to determine whether a person is eligible for Medicaid is to apply. In Ohio, applications are made at the county office for the Department of Job and Family Services.
- The eligibility standards are less restrictive for Medicaid Waiver programs than for regular Medicaid healthcare coverage.
- A person can be covered by both Medicaid and Medicare. A person may also be able to get Medicaid benefits even with private health insurance coverage, because the eligibility is based on income and resources.
- A redetermination review is required annually for Medicaid. The Medicaid caseworker contacts individuals with a date for the review and instructions about what information is needed.
- If a person is unable to complete a Medicaid application or attend a face-to-face interview or review, someone else can attend. This person is referred to as an “authorized representative.” A form from the county office of the Ohio Department of Jobs and Family Services (ODJFS) needs to be completed and signed by the individual to request an authorized representative.
Medicaid Spend Down:
A person whose income is over the limit for Medicaid can still receive coverage through a “spend down” provision. If a person is eligible for spend down, the Medicaid caseworker will inform him or her of the amount of the spend down, based on the amount of income over the specified Medicaid eligibility. The person’s medical expenses must total at least this amount each month to be eligible for Medicaid. Once the spend down is reached, Medicaid will begin to pay the additional expenses for that month.
On the date the spend-down amount is reached, a Medicaid card is issued. In order to get a Medicaid card and demonstrate that the spend down has been met, a person may:
- Produce medical bills from the past that have not been paid, and Medicaid can count these toward spend down for several months;
- Show Medicaid a regular monthly expense equal to the spend-down amount;
- Show Medicaid that the person owes or has paid a medical expense equal to the spend-down amount; or
- Pay the spend-down amount to the county department each month.
There are several work incentives under the Medicaid rules to encourage people who have disabilities to gain employment. One of the most common is the Medicaid Buy-In section of the ticket to work and work incentives act. Ohio does participate in the program but not all states do. There are specific eligibility requirements and monthly premiums are required for people whose annual income is greater than 150% of the federal poverty level.
Some employer-sponsored health-insurance policies allow for the continued coverage of children with disabilities after the age of 18. Parents will need to read through the insurance policies and make inquiries to determine if this is the case. This should occur well before the child’s 18th birthday to be certain that applications or other paperwork is filed on time. If an employer changes insurance companies, parents will need to look into whether the new company will continue the coverage for an adult child with a disability.
You can get more information and apply for the Ohio Buy-In program at http://medicaid.ohio.gov/FOROHIOANS/Programs/MBIWD.aspx.
Life insurance offers a way for parents to be certain that money is available when they are deceased to continue funding the extras or supplemental needs that they have always purchased for their children. Parents should take care that the life insurance proceeds do not place the benefits that are providing for their child’s health care and basic needs at risk. Parents can set up a trust, funded exclusively with the proceeds of a life-insurance policy upon their death. Such a trust will not cause the child’s benefits to be challenged. The cost and scope of life insurance policies varies greatly, so parents will want to shop around.
Long-Term Care Insurance
In order to fund their own care as they age while also assisting a child with a disability, parents may consider purchasing long-term care insurance. Medicare and employer health-insurance policies do not pay for long-term care expenses, although some policies and Medicare cover short-term skilled nursing or care for rehabilitation. Medicaid does pay for long-term care, but a person has to use up most of his or her savings and other assets first. Long-term care insurance pays for personal care services while preserving income and savings.
Private long-term-care insurance policies have become more comprehensive; many now cover adult day services, assisted living, personal care and hospice care, in addition to nursing-home care. Long-term care insurance, however, can be very expensive. Premiums vary and increase significantly with a person’s age when purchased. Policies are available through some employers, insurance agents, some financial planners, and some continuing care retirement communities.
Because there is much to consider when purchasing long-term care insurance, parents will want to do some research and shop around. Here are some things to keep in mind.
- Long-term care policies may not be available to everyone due to medical underwriting, and the premiums are based on age at the time of application. People who can benefit from long-term care insurance should buy while they are young and insurable.
- People will probably be paying premiums for a number of years. It is important to consider whether premiums will be affordable if circumstances change or premiums increase.
- Long-term insurance is primarily beneficial to protect assets and income. If a person will easily qualify for Medicaid (i.e., taking only a year to deplete savings if paying for long-term care out of pocket), a long-term policy would not make sense, because the cost would outweigh the savings. However, long-term care insurance can make it possible to preserve a parent’s assets for a child with a disability.
Professional Legal Services
When legal services are needed, one should engage an attorney familiar with the issues unique to people who have disabilities. Because disability law encompasses many areas (estate planning, government benefits, ADA, guardianships, health law, IDEA, and so on), most attorneys are not familiar with every area. Some attorneys are proficient in filing claims under ADA and IDEA regulations but may not have expertise in estate planning. On the other hand, an attorney with experience in estate planning may not know the intricacies of trusts.
So, how does one choose an attorney who is competent i planning for people with disabilities? Unfortunately, there is no one place to find a list of attorneys who specialize in this area.
Here are a few suggestions for retaining the right attorney:
- Ask the attorney questions. What percentage of his or her practice is devoted to disability law? Does he or she have any special training in estate planning or disabilities?
- Talk with local advocacy groups such as the Arc.
- Ask friends and other parents of people with disabilities whom they have used.
- Ask social workers, therapists or other professionals who work in the disabilities field for the names of any attorneys who work in disability law.
- Check with Certified Elder Law Attorneys. Although the specialization is not quite the same,
there are similarities in estate planning and preserving benefits.
- Call the local Bar Association.
Although legal fees can be expensive, the services of a competent attorney can save money in the long run. Here are some ways to minimize legal fees:
- Make sure that the attorney works only on issues that require legal representation. For instance, exhaust every option in a disagreement with a provider before involving the attorney.
- Ask if there is a fee for the initial consultation. If so, make sure that this is the attorney you want, and make the best use of the time spent with him or her. Be clear about what the fees for service will be and exactly what those fees will cover. Find out if fees will be a flat rate or hourly rate.
- Ask the attorney or secretary what to bring to each appointment. Make sure that necessary
documents are organized, so that time is not wasted in looking for a document.
- Discuss plans and issues with interested parties before meeting with the attorney. The attorney’s office is not the place to discover a difference of opinion between parents, for instance.
- Parents should also discuss plans with siblings or other involved family members before the attorney drafts any documents, to avoid paying for changes later on.
Trusts are another means available to parents to provide for children with disabilities. A trust is an agreement under which one person transfers title to specific property to another who agrees to hold or manage it for the benefit of a third person. The trust gives specific instruction for how the assets are to be used for the benefit of a person. Trusts are often used to maintain assets for someone who is not old enough or who does not have the ability to make decisions about using the assets. Parents can establish a trust for the support and care of their child as long as there are assets placed in the trust. A trust used for basic needs, however, could be considered a resource and make a person ineligible for needs-based public assistance such as SSI and Medicaid.
A carefully drafted trust can be established to meet the supplemental needs of an individual with a disability without jeopardizing government benefits. Supplemental needs are the “extras” that parents or other family members often provide to an adult child. These items make a person’s life more enjoyable but are often not affordable for people receiving government benefits. The trust allows parents to continue doing what they have always done for their child after they are gone. Trusts are not used to hide assets in order to make a person with a disability eligible for government benefits. Rather, they provide for the extras that improve a child’s quality of life.
Because benefits such as Medicaid and SSI are funded through tax dollars, the government has established rules to prevent individuals from receiving benefits when they have other resources available. The state of Ohio looks closely at all of a person’s possible resources in order to enforce these rules. Trusts are an important target of this enforcement. The rules for establishing a trust to benefit a family member with a disability are complex. Families must use the services of an attorney with expertise in drafting trusts for people with disabilities. If the document is not carefully crafted or funds are distributed incorrectly, government benefits could be lost.
Families should not assume that trusts are only for the wealthy. Supplemental needs are not necessarily expensive, and relatively little money can provide things that significantly improve a person’s life. Some of the assets that can be directed to a trust include the parents’ estate, property, inheritances from other relatives or friends, and life insurance. Some types of pooled trusts can provide a less expensive option by funding a trust with a smaller amount of money. At any rate, it is worth exploring the options before assuming a trust is not within one’s means.
In order to start exploring options for a trust it will help to know some terms:
- All property in the trust, including real and personal property and income.
- The person for whose benefit the trust is established. Money from the trust is expended on behalf of the beneficiary (not to the beneficiary) according to the terms of the trust document. The beneficiary does not have access to or control over the money or assets in the trust.
- The person who establishes the trust by signing the trust document.
- Supplementary Services
- Items or expenditures that go beyond what is covered by government benefits but which can enhance the quality of a person’s life. (See the list of examples below).
- The person who manages the trust. This can be a person or an organization. The trustee invests the money in the trust, makes distributions from the trust according to the trust document, makes reports to the beneficiary, and files tax returns for the trust.
- Testamentary Trust
- Created in a person’s will. The trust is supervised by probate court and goes into effect only after the will is probated
- Inter Vivos Trust (or living trust)
- Goes into effect upon signing. A living trust can carry out wishes beyond the life of the person creating the trust. A living trust may be revocable or irrevocable. The grantor may serve as the trustee.
- Revocable Trust
- A trust under which the grantor keeps the power to terminate the trust and regain full control of the property.
- Irrevocable Trust
- A trust under which the grantor does not keep the power to terminate the trust and regain full control over the property.
- Third Party Trust
- A living trust or testamentary trust in which the beneficiary under the trust is someone other than the grantor.
- Safe Harbor
- Safe from invasion by the state as long as the trust meets certain conditions in law.
- “Poison Pill”
- A provision in a trust that terminates the trust if the existence of the trust causes the beneficiary to be ineligible for government benefits
- Spendthrift Clause
- Clarification in a trust document that the beneficiary does not own the assets of the trust and that the beneficiary cannot require the trustee to make distributions.
Examples of supplemental services may include but are not limited to:
- Participation in hobbies or sports
- Attendance at or participation in recreation or cultural events
- Subscriptions to magazines
- Fees to join clubs
- Gifts for family or friends for special occasions
- Modest donations to churches or other charitable organizations
- Electronic equipment for private use by the individual (i.e. radio, television, camera)
- Seminars or conferences
- Burial expenses when they are prepaid by contract (up to $4,500)
- Items not covered by Medicaid and other government benefits, or for which payment has been denied, such as a wheelchair or communication device, unless the item is included for payment by the per diem of a residential facility
- Certain expenses for advocacy or guardianship
A parent with substantial assets may choose to establish a Support Trust to provide for the care of a child who has a disability. Funds from a Support Trust could be used for basic needs and care as long as funds remain in the trust. The child would not be eligible for needs-based benefits such as SSI, Medicaid, or housing assistance as long as the Support Trust exists.
A relative or other concerned person (third party) can establish a Discretionary Trust to provide for supplemental needs of an individual with a disability. In this type of trust, the trustee is given full discretion to use the trust assets as he or she determines is appropriate. The advantage of a Discretionary Trust is that the remaining assets after the death of the beneficiary can be given to anyone, rather than having to be paid back to the state for past care. The disadvantage of a Discretionary Trust is that the assets can be at risk if the trust is challenged. Again, the services of an attorney who has expertise in the area of trusts for individuals with a disability are a necessity. Additionally, the trustee of a Discretionary Trust must be willing to learn how distributions from the trust can affect government benefits.
In Ohio, another option for families who want to provide for supplemental needs without risking needs-based benefits is the Supplemental Needs Trust. The law allows for establishing this trust for individuals who are being served, or are eligible to be served, by the state or local mental health or DD systems. A Supplemental Needs Trust cannot be created with assets belonging to the beneficiary. There is a limit to the amount of assets that can be used to create this trust, which, for 2004, is $220,000. The trust assets can be used only for supplemental needs. 50% of the remaining assets in the trust at the time of the beneficiary’s death must go back to the state of Ohio. The fund in which the remainder amount is deposited was established by the state to benefit those who do not have such a trust arrangement.
The federal government passed a law that allows the establishment of trusts to provide for supplemental needs for individuals who depend on SSI or Medicaid for basic needs. The trusts are also sometimes referred to as OBRA Trusts (Omnibus Budget Reconciliation Act), named for the law that allows the establishment of the trust. These federal laws make it possible for people with disabilities to place their own money in a trust and remain eligible for Medicaid and possibly SSI. The trusts contain provisions requiring that any assets remaining in the trust at the death of the beneficiary be used to pay back Medicaid for expenditures made on behalf of the beneficiary, thus the name Medicaid Payback Trusts. A Medicaid Payback trust can be an individual trust (called a Special Needs Trust) or a Pooled Trust.
A Special Needs Trust is an individual trust established with the assets of the person with a disability; however, funds from other parties can be added. The trust must be created by a parent, grandparent, legal guardian, or a court. The trust has to be funded before the beneficiary reaches the age of 65. Expenditures from the trust can be used only for supplemental needs. At the death of the beneficiary the remainder of the assets in the trust must be paid back to Medicaid as payment for past care. The payback amount will depend on the amount of past care but could total 100% of the remainder.
A Pooled Trust is managed by a nonprofit corporation that has met special requirements in federal and state law. Pooled Trusts are not available in all states or areas. In a Pooled Trust, a separate account is maintained for each beneficiary, but the assets of many beneficiaries are pooled for the purposes of investment and management. The management and nature of services that Pooled Trusts offer will vary. The funds in a Pooled Trust can be used only for supplemental needs. A Pooled Trust can be created by the individual with a disability, as well as by a parent, grandparent, legal guardian, or the court. The remainder of funds in the trust when a beneficiary dies may remain there either for use by other beneficiaries or for the cost of managing the Pooled Trust, or as payment to Medicaid as reimbursement for past care. This election is made when the trust is established.
Pooled Trusts offer a number of advantages. A trust can be very expensive to maintain, with average annual bank fees as high as $2,500 – $3,000. According to a survey done several years ago in Ohio, the average trust would have to contain a minimum of $300,000 in order to cover the bank fees without eroding the principal. Pooled Trusts are generally less expensive to manage and can be funded with smaller amounts of money. Another primary advantage of Pooled Trusts is that they are managed by a nonprofit corporation likely to be well-informed about the trust’s possible effects on needs-based benefits. This would include knowing what expenditures can be made without risking benefits, as well as being aware of changes in current laws. There are also disadvantages to Pooled Trusts, such as reduced family control over how trust funds are invested.
Two organizations have established Pooled Trust programs to benefit individuals in the state of Ohio: The Disability Foundation, Inc. and Community Fund Management Foundation.
Community Funds Management Foundation, a statewide organization that works as a trust advisor for individuals with disabilities. The beneficiary must be a resident of Ohio. Each trust option offered through CFMF can be used only for supplemental needs. A “designated advocate” is chosen by the person creating the trust to make requests for expenditures from the trust. The designated advocate can be a person or an organization. CFMF reviews the request to safeguard eligibility for Medicaid and perhaps SSI. Distributions are made on a monthly basis.
- Pooled Medicaid Payback Trust – Funds belonging to the individual with a disability are used to fund this trust, but other people can contribute to the trust. The trust can be created by the individual with a disability (if capable) or by a parent, grandparent, legal guardian or the court. A minimum amount ($5,000 currently) is required to fund the trust. Upon the death of the beneficiary, the assets remaining in the trust can be used for payback of Medicaid services received or they can be left in the trust, where it becomes part of the endowment of the Community Fund Management Foundation. This election is made when the trust is established.
- The Roll-In Pooled Medicaid Payback Trust – The fund, requiring an initial deposit (which covers set-up fees), allows individuals with a disability to save their own money. Individuals can put money into the fund each month or as often as necessary. Money cannot be taken out of the fund for expenditures until the fund reaches $5,000. Upon the death of the beneficiary, the assets remaining in the trust can be used for payback of Medicaid services received, or they can be left in the trust, as described above.
- The Master Trust – Funds (currently a minimum of $15,000) belonging to anyone but the person with a disability can be used to fund this trust which is a particularly discretionary trust. There is no requirement for payback to Medicaid upon the death of the beneficiary.
The Ohio Community Pooled Trust is managed by The Disability Foundation, Inc. It can provide another option for people living in certain southwest counties of Ohio.
A trust can be an important part of the overall future plan for an individual with a disability. This is an area that requires more investigation and the services of an attorney with specific expertise.
A number of publications offer more detailed information about trusts and future planning in general. Two that are especially helpful are:
- Estate and Future Planning for Ohioans with Disabilities and Their Families, by David A. Zwyer, Esq. Published by the Ohio Developmental Disabilities Council. (ddc.ohio.gov)
- Pooled Trust Programs for People with Disabilities, A Guide for Families. Published by The Arc.(www.thearc.org)
An important part of an estate plan for parents is a properly drafted will. A will is a legal document that determines the distribution of property and assets after death. When a person dies without a will (intestate), the state intestacy law will determine how the property and assets will be distributed. This law varies from state to state, but typically a percentage of the estate goes to the surviving spouse, and the rest is distributed equally to the children. If a child receives a distribution from a parent’s will or probated estate that exceeds the asset limits set by SSI, Medicaid, or housing assistance, these benefits could be discontinued. Without a will, the Probate Court would choose a guardian for a minor child. If parents have a will, the Probate Court will determine if the will is valid and take the steps needed to put the will into effect.
Like every other aspect of future planning, the will is very individualized. Some things to keep in mind when drafting a will are:
- Parents may want to consider having an attorney with experience in estate planning at least review the will, due to the special considerations for family members with a disability.
- Some assets are not governed by the will. Assets payable on death and transferable on death, as well as property with the right of survivorship, such as a home, pass independently of the will. Life insurance and employer-provided pension plans are paid directly to the named beneficiary.
- A parent or current guardian can name in his or her will a successor guardian for the child with a disability. This nomination will not be legally binding for adult children but is given weight by the court. The nomination of a guardian is legally binding for minor children. Parents are often encouraged to name successor guardians three deep (a primary, first backup, and second backup). At least some of the people named should be the same age or younger than the person with the disability.
- To avoid risking the loss of government benefits for a child with a disability, parents may decide to leave assets to other children or relatives, with instructions that the assets be used for the child with a disability. Although simple, this approach is not enforceable and therefore risky. Because the assets become the property of the person to whom they are left, they can be lost if the person dies, goes through a divorce, or is sued, for example.
- A will can provide that assets will be left to a special needs trust to minimize the risk to government benefits. Parents planning to use this option must be certain that an attorney with expertise in this area reviews the will.
- Parents can leave their home to a child with a disability without necessarily risking government benefits. Issues for parents to consider include protecting the home if the individual is vulnerable to exploitation and providing for maintenance expenses. Additionally, leaving a home in a trust or giving the person the right to live in the home during his or her lifetime (a life estate) can be complex and may place benefits at risk. These options can be less risky with some careful planning.
- An executor should be named in the will. The executor collects, maintains, and distributes the estate according to the wishes specified in the will. An executor is often a family member but, for more complicated estates, may be a bank or trust company. The executor can hire an attorney or accountant to assist in carrying out the provisions of the will, and the estate can pay the attorney fees. The executor should have access to the letter of intent for the child, since the letter will provide more information and details about the parents’ wishes for their child than the will.
- Once a will is written, it should be reviewed periodically, at least every five years, or whenever there is a death in the family or a change in the parents’ health or economic situation.
Tax consequences are another consideration in financial planning. In addition to the federal rules that apply to individual taxes, families also need to deal with state and local taxes. All of this is complicated, of course, by the one or more exceptions that apply for every rule, as well as the frequent changes in rules. Because the tax codes are so complicated and change frequently families will need to hire a tax professional or do a great deal of research to ensure that they are following all applicable regulations and maximizing personal tax outcomes. Resources can be found at www.irs.gov and www.state.oh.us/tax.
When completing tax returns families will need to consider the following:
- Some public benefits may be taxable.
- The rules for claiming a family member that you provide support to are complex and depend on the relationship, what support it provided, income and several other criteria.
- If you can claim your family member as a dependent some medical expenses may be deductable when you itemize.
- If a family member lives with you and other criteria are met you may be able to deduct expenses for care that you pay as dependent care expenses.
- If you are paying someone to provide care for your family member there are wage and hour rules as well as tax responsibilities such as withholding payroll taxes to consider.
- If you hire staff who live in the home with your family member the value of room and board may be taxable as income.
- If the person with a disability owns their own home and receives rent from house mates the rental may be taxable as income.
- If a family member owns the home and receives rent from their family member who has a disability or house mates the income would be taxable to the home owner.
Again, the complexity of tax law requires a great deal of care and research. Contact a tax professional for assistance.
Planning for work has to go hand in hand with providing for a future home. Economic self sufficiency is a major focus of transition planning while children with a disability are in school and often remains the focus of parents’ efforts after children finish school. Although this manual focuses primarily on residential planning, parents may also want to consider certain work-related issues while making plans for home.
Financial eligibility for benefits such as SSI and Medicaid should be kept in mind as a child is looking for work. Parents may not want to encourage a child to turn down positive work experiences just to prevent loss of benefits, especially if the work experience could lead to economic self-sufficiency. On the other hand, for an individual dependent on Medicaid eligibility for support services, ineligibility could be financially devastating. The answer to this dilemma is careful planning. If a good job becomes available, parents will need to study the impact of increased income on benefits. A vocational counselor working with a child will likely have helpful advice about maintaining benefits while a child is working. Families can also contact a benefits planner.
Finding an appropriate job and manageable transportation to and from work can be a major challenge for individuals with a disability. Once a person has found positive employment, he or she will want to retain it. If a child has not found that “perfect” job, the location of a home may be somewhat flexible until the right job is found. This may mean holding off on a move or renting initially. By doing so, an individual will have more flexibility in looking for work.
If a child is involved in a day activity program or sheltered workshop, the location of a home can also be important. First, parents will need to make sure that a move will not change eligibility for a program. For instance, in some larger counties the adult activity centers or sheltered workshops may operate only within a certain area. A person who moves to a different area would have to move to the activity center in the new area. If the child has made important connections or is likely to have significant difficulties with a transition, such a move can be problematic.
When a child moves into a new home, transportation to the day program also becomes an issue. If the transportation is significantly more expensive or the drive to the day program extremely long, a different location might be preferable. Parents should talk with the service and support administrator or the manager at the day
program if either of these situations arises. Solutions are possible. For example, if parents are willing to assist with transportation, their child may be able to remain in the same day program. Alternatively, the child might stay at the current day program only until he or she has made an adjustment to the new home.
One other consideration relating to work and day programs is scheduling. Work schedules can affect residential supports. For instance, if children need support whenever they are at home but have different work schedules, the budget for support staff may increase. If an individual’s schedule at work varies significantly, this can create a problem with staff schedules. Again, these problems should not be a reason to decline a good job offer or to decide not to live with a friend The situation will need to be discussed, and some creative solutions may be needed.