The Voice is the email newsletter of The Special Needs Alliance. This installment was written by Mary Alice Jackson, a member of the Special Needs Alliance and active participant on its Public Policy Committee. She is a partner at Boyer & Jackson, P.A., with offices in Sarasota, Florida, and Austin, Texas. Her practice includes special needs and long-term care planning, estate planning, probate and end-of-life issues. Mary Alice is also an active member of the National Academy of Elder Law Attorneys, a past Chair of the Florida Bar Elder Law Section, and an adjunct professor in the Stetson University College of Law Elder LL.M. program.
July 2012 - Vol. 6, Issue 9
There is a tremendous feeling of helplessness for friends and family when someone they care about is facing a life-altering injury or illness. This is particularly true in the early days when a diagnosis is first made, an accident occurs, or an illness becomes life-threatening. Those on the periphery of the situation don’t know what to say because there are few words that adequately express their feelings. Feeling helpless, people will often spring into action by identifying what the family might need and working out how to provide for those needs. A specially equipped van, money to offset lost wages, assistive devices, respite for caregivers, and home alterations are a few things that can make a significant difference in the life of a person with a disability and her family.
Fundraisers – What Could Go Wrong?
When charitable acts are performed, it’s hard to think that anything but good will come of it. Most people never consider the impact on existing or potential Supplemental Security Income (SSI) or Medicaid benefits. But fundraisers, solicitations and well-meaning donations can actually cost a lot more than family and friends appreciate. Important public benefits can be lost because the beneficiary or his or her legal representative is not aware that the monies raised can cause the reduction or elimination of vital benefits. While it may seem cumbersome, seeking the advice of a special needs attorney is essential to maximizing the benefit of any fundraiser. The phrase that it is “better to seek forgiveness than permission” is especially applicable in the areas of SSI, Medicaid and other public benefits programs. Anyone who has been exposed to the eligibility process of public benefits knows that the scrutiny given to a recipient’s income and assets is unforgiving. This scrutiny becomes particularly frustrating when well-meaning friends and family try to help out by holding fundraisers and collecting donations to ease the financial stress of living with a disability. However, failing to closely follow the eligibility rules can result in the loss of very important services.
This article will highlight a few of the issues which need to be considered before moving full speed ahead to planning a fundraiser. Here are some questions that need to be asked when fundraisers are being planned or donations are being solicited:
- Are there state laws which govern fund raising for individuals? Many states have licensing and/or reporting requirements in these situations.
- Is the proposed beneficiary receiving public benefits? If so, which benefits? Are there income and/or asset limits which must be considered?
- If not, has an application for public benefits been filed? Be sure to check with a hospital social worker or other professional involved in the care to determine whether benefits have been applied for without the beneficiary’s knowledge or understanding.
- Is the proposed beneficiary an adult? If so, is he or she married? Are there children?
- If the proposed beneficiary is a minor, will he or she be eligible for public benefits before reaching the age of 18? There may be rules regarding deeming of income and assets of the parents which could affect immediate eligibility.
- Has a trust been established for the benefit of the beneficiary? If so, by whom and when? Does the trust include special needs language?
- Has a not-for-profit corporation meeting IRS regulations been formed?
- Who are the anticipated donors?
- Who will the solicited funds be paid to?
All of these questions are part of the analysis that must be performed when considering the benefit of raising private funds in any manner. The goal of special needs planning is to maximize goods and services which can be provided by public benefit programs, so that privately held funds can be used for needs that are not covered by public benefits. In many cases funds paid directly to an individual with a disability can be set aside in a special needs trust (SNT). If there is any money remaining in that SNT when the beneficiary dies or the trust is terminated, those remaining funds must be paid back to Medicaid to reimburse the state for the benefits it has paid. (This requirement is referred to as “Medicaid payback.”) A SNT which is established with third-party funds (those which have not originated with the beneficiary but were paid by others directly to the trust) is not subject to the Medicaid payback at the time of death or early termination of the trust. Finally, some potential beneficiaries may not need public benefits or may be as well off without them.
Strategically, family and friends should plan a fund-raising event so as to maximize benefit eligibility for an individual who wants to maintain or preserve access to beneficial programs. In addition, it may be important for the donors to protect the funds from Medicaid payback if the beneficiary dies before the funds have be spent for his or her benefit.
Let’s look at an example. Lucy is a newborn infant who has been diagnosed with significant cognitive limitations. In addition, she has physical deficits, and it is unlikely that she will ever walk. Lucy will require 24-hour care for the remainder of her life. Because of her serious medical conditions, her parents apply for SSI and Medicaid benefits. The application is approved and benefits commence.
Lucy’s grandparents and a few special friends want to help the family. They organize a fundraiser which consists of a dinner and a silent auction. They also place canisters in a few local business asking patrons to “Help Lucy!” The organizers’ goal is to raise enough money to buy a van and have some additional cash remaining for Lucy’s parents, who have lost months of wages and are struggling to make ends meet. The dinner invitations state that the price of the dinner ticket is tax-deductible, less the cost of food. Checks are to be made payable to the name of the event, “Lucy’s Gang,” although some people purchasing items in the silent auction write their checks directly to Lucy’s parents or to Lucy herself. The event raises $42,000 and an additional $2,300 is raised from the canisters. These funds are placed into a bank account established by Lucy’s parents in her name.
Lucy and her parents are very fortunate to have the support and hard work of these family and friends. The unfortunate news is that their efforts have created a number of complications which will adversely affect Lucy’s continued eligibility for SSI and Medicaid benefits. Where did they go wrong?
Income Issues for SSI and Medicaid
SSI and many Medicaid programs limit both earned and unearned income. Cash gifts and donations are considered unearned income. The beneficiary or her legal representative must report changes in income to the Social Security Administration no later than 10 days after the end of the month in which the change occurred. For example, if a cash donation of $1000 is received by an SSI recipient on March 15, the donation must be reported no later than April 10. Therefore, all of the donations made directly to Lucy or deposited into her bank account must be reported to SSA by the 10th of the following month.
So, an important question to be considered (preferably before any fund raising efforts are underway) is to whom the funds will be paid. Lucy’s fundraiser produced funds raised for “Lucy’s Gang,” Lucy’s parents and Lucy herself. Coins dropped in to the canisters were intended to “Help Lucy,” but did the donor have an expectation that a newborn baby would be the recipient of the funds? Or did the donor want to help Lucy’s parents?
In an instance such as Lucy’s where checks and cash are given to a family, a “cause,” to a parent of a disabled child and/or to the child herself, there can be real confusion in determining who owns the funds. Monies made payable to Lucy herself or deposited into an account that has her social security number are clearly income to her. Checks made payable to Lucy’s parents can be considered as belonging to the parents because of the “name on the check” rule. Funds for the cause, whether it be the dinner or the canisters, create uncertainty as to the donor’s intent. Because minor children cannot receive the funds outright, it may take a determination by a court ruling to decide the ownership of the funds under state law, and then to confirm that position with the Social Security Administration or the state Medicaid agency.
In order to prevent the funds that were donated to Lucy from disqualifying her for SSI and Medicaid benefits, it would be necessary to properly establish a Medicaid payback SNT to hold her funds. The trust will preserve Lucy’s SSI and Medicaid benefits. Additionally, the payback provision may actually reassure some donors who don’t wish their gifts to be used for the benefit of other family members in the event that there are assets remaining at the time of Lucy’s death.
But if the fundraiser is well planned, all donations intended for Lucy’s use, rather than for her family, will be made directly to a trust for Lucy’s benefit. Again, this kind of trust, a third-party trust, need not have a Medicaid payback clause. However, as mentioned above, many contributors will be concerned about the ultimate disposition of the funds should any remain upon Lucy’s death, so it will be necessary to resolve this issue when the trust instrument is drafted. If the remaining funds will benefit Lucy’s family, then that should be made clear in the fund-raising activities.
When a Charitable Act Is Not a Charitable Deduction
It’s common for people to assume that any donation they make for a good cause is tax deductible, but unfortunately that is not the case. None of the contributions to Lucy or for her benefit will be deductible. Charitable contributions must be paid to a charitable organization that meets stringent requirements of the Internal Revenue Code, and the organization must apply with IRS for approval of its status. A SNT does not qualify, primarily because it for the benefit of a single person. A lot of problems and ill will are generated when potential donors are told that their contributions will not be tax deductible—so this is a mistake to be avoided.
No good deed goes unpunished. Despite the good intentions of people who want to help families in desperate financial straits, it is not easy to create a financial safety net when the parties involved are on, or will need, public benefits based on financial need. The good news is that there are plenty of ways to allow generous fund raising to occur in a manner that allows everyone to be a winner. With the advice and planning of a special needs attorney, fund raising can benefit the person in need and meet the intention of the generous public who wants to help.