Jefferey M. Yussman is a member of the Estate Planning Group of Wyatt Tarrant & Combs, LLP, in Louisville, Kentucky, where he chairs the firm’s special needs planning practice. His practice is concentrated in the areas of estate planning and administration, business succession planning and charitable planning, but the birth of his two special needs children 20 years ago led him into the sub-specialty of planning for individuals with special needs. In addition to the Special Needs Alliance (where he is a member of the board), Mr Yussman is a Fellow of the American College of Trust and Estate Counsel, and is listed in America’s Best Lawyers, Estate Planning (Kentucky estate planner of the year in 2010) and Elder Law, as well as Kentucky Super Lawyers. Mr. Yussman is the current board chairman of Wellspring, a Kentucky organization providing crisis stabilization and housing supports for mentally ill adults, and is a current executive board member of The Community Foundation of Louisville.
Ninety percent of businesses in the United States are “family businesses” – meaning that 50% or more of the business is owned by individuals within a family. Those businesses produce half the nation’s GNP and create 80% of the new jobs in the U.S. Over half of the Fortune 500 companies are family controlled, so family business is not necessarily synonymous with small business. Surely there are family members of these family businesses who have special needs!
Is there – or should there be – a place for family members with disabilities in the business-as either an employee, an owner, or both? Perhaps. If so, is there a way to accomplish each goal and still allow the family member to retain government benefits? YES!
Families and family businesses are complicated and messy. Having a family member with special needs is simply another part of the complex and challenging nature of family, business and family business. Why shouldn’t the family member with a disability be treated as similarly as possible as any other employee or owner when the business is planning for its future?
In developing its strategic plans, the family business should determine its core values, not only for the business, but also for its employees and family members who are working inside or outside the daily operations of the business. If part of those core values includes providing appropriate accommodations to individuals with special needs, a family member should not be excluded from the potential employee pool just because they are a family member-unless there are special rules relating to all family-member employees. In other words, the family member with special needs should be treated as any other family member, and also as any other employee with special needs, no more and no less.
The same rules should apply to family members with disabilities owning stock in the family business. The business should establish rules which are-first and foremost-in the best interest of the business, and then in the best interest of the family. Sometimes these interests diverge, and they always have the potential for causing family or business disharmony and strife. But, planning with a family member with special needs simply adds one additional element to that challenge.
Let’s assume the family business has planned for its operation and future and has decided the family member with special needs (let’s call her Susan) should be allowed to work in the business and potentially own stock, just like any other family member. Can those two goals be achieved without jeopardizing Susan’s government benefits; particularly Medicaid? Yes, as long as the normal income and resource limitation rules relating to Medicaid qualification are carefully considered and safeguarded.
How employment in the family business will affect disability benefits will depend upon whether the Susan is receiving Title XVI Supplemental Security Income (SSI) or Title II disability benefits. SSI benefits are for blind, elderly, or disabled persons of low income and assets. SSI beneficiaries also qualify for Medicaid in most states. Title II disability benefits will either be Social Security Disability Income (SSDI) based on Susan’s work record or Child Disability Benefits (CDB) based on the work record of Susan’s disabled, retired or deceased parent.
If Susan is receiving SSI and Medicaid and wants to retain those benefits, she should not exceed the resource and income limits necessary to maintain her benefits in the state where she lives. Generally speaking, Susan’s countable resources should not exceed $2,000 for the SSI program and most state Medicaid programs (see below regarding stock ownership). Some states have a higher resource limit for some of their Medicaid programs. In the majority of states, Susan’s monthly gross earned income (assuming there is no unearned income or supplied food or shelter expenses provided by others) should not exceed $1,431 per month. This will leave Susan with $1 of SSI, which will automatically qualify her for Medicaid in most states. This amount will be higher in states that pay an additional supplement to the federal SSI benefit amount ($674 for 2011 and $698 for 2012). Here is how the Social Security Administration will calculate Susan’s eligibility for SSI:
|SSA does not count first $20|| |
|SSA does not count first $65 of wages|| |
|SSA does not count ½ this amount||$1,346|
|Wages SSA does count|| |
|The most SSA will pay in any month|| |
|Minus income SSA counts (see above)|| |
|Total SSI payment for month|| |
If an individual receives at least $1 of SSI this results in automatic Medicaid qualification in the majority of states. Be aware that it is best not to make this calculation without the assistance of someone knowledgeable of the SSI program, as other factors come into play that are not discussed in this article.
If Susan is receiving SSDI or CDB as opposed to SSI, she can keep that cash benefit and her wages as long as the wages are less than the amount considered to be Substantial Gainful Activity (SGA) by the Social Security Administration.. In 2011 wages that equal or exceed $1,000 are usually considered to be SGA ($1,640 if the disability is blindness). The SGA amount will go up to $1,010 for 2012 and will go up to $1,690 if the disability is blindness. If the business paid Susan $999 or less per month, then Susan’s wages would stay below the SGA limit. In determining if wages are below SGA, Social Security also takes into account work subsidies. For example if Susan requires 20% more supervision than the other employees, Susan’s gross wages should be reduced by 20% in determining if wages exceed SGA. If the family business pays for a job coach to help Susan and that expense costs $200 per month, her gross wages should be reduced by $200 in calculating earnings for SGA purposes.
Some might say that the administrative work for the family business to understand and comply with these rules outweighs any possible contribution Susan can make to the business, but imagine the increased self-esteem she would feel by successfully working, not to mention having “a little extra jingle in her pocket!” Once the details are mastered, the benefits can far outweigh the costs.
The same issues are present with regard to ownership in the family business. If Susan receives SSI, she cannot have assets exceeding the applicable nominal resource limitation, so an alternative form of ownership, like a third party special needs trust, would seem to be in order. The trust would be drafted by the owners of the family business for the benefit of Susan. A properly drafted special needs trust can protect Susan’s SSI benefits because she will not be the direct owner of the company stock. In putting family business stock in a special needs trust some tricky income tax rules (depending on whether the business is taxed as a C corporation, S corporation, or partnership) will need to be considered with the business’s accounting and tax advisors, but the end goal can be achieved if thoughtfully considered. Utilizing an appropriately designed special needs trust can further the business’s goals, help achieve the core values of the business and family, give Susan parity with other family members and provide a security blanket (i.e. equity in the business) for her.. If Susan receives SSDI or CDB benefits, individual ownership of the business does not present eligibility issues though it still might be prudent to utilize a trust for protection and management reasons.
Like planning for any business, planning for owners and employees who happen to have disabilities can be challenging. But, the rewards-for the family member, the family business, and the other employees of the business-can be remarkable. Consequently, such planning should be thoughtfully considered in the normal course of planning for the business and the family.
About this Newsletter: We hope you find this newsletter useful and informative, but it is not the same as legal counsel. A free newsletter is ultimately worth everything it costs you; you rely on it at your own risk. Good legal advice includes a review of all of the facts of your situation, including many that may at first blush seem to you not to matter. The plan it generates is sensitive to your goals and wishes while taking into account a whole panoply of laws, rules and practices, many not published. That is what The Special Needs Alliance is all about. Contact information for a member in your state may be obtained by visiting the Special Needs Alliance online.
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