The Voice is the e-mail newsletter of The Special Needs Alliance. This installment was written by Special Needs Alliance member Gregory S. French, CELA of Cincinnati, Ohio, a Certified Elder Law Attorney who has, among other honors, been named as an Ohio SuperLawyer for each of the past five years.  Mr. French also serves on the Executive Committee of the National Academy of Elder Law Attorneys. For 32 years he has helped families to maximize the independence and quality of life of older and disabled persons, to obtain and pay for health and long-term care in ways that preserve family resources, and to plan for disability or death through wills, trusts, powers of attorney, and health care directives.

January 2009 - Vol. 3, Issue 1

Child kissing woman on cheek Families are often sandwiched between the long-term care needs of parents and grandparents and the health care, income, housing, and other needs of children with disabilities. As the parents of a child with disabilities themselves age, they need to develop a plan to meet the needs of their child. Similarly, potential nursing home and other long-term care costs may prevent grandparents and other aging family members from providing for younger family members with disabilities.

Parents need to consider where their child might live and what supports would need to be in place to make independent living possible. Depending on the extent of disability, the parents may need to explore group homes, assisted living facilities, and nursing homes. An attorney with experience in helping special needs families can help identify and assess options as well as adjust the housing plan as the child’s needs evolve. An actively involved professional can help accomplish the parents’ goals — even after their deaths.

The resources of many children with disabilities are insufficient to meet their health care, income, and shelter needs. Such children depend on government programs like Medicaid, Supplemental Security Income (SSI), and subsidized housing. To qualify for such programs, the child needs to meet the particular income and asset standards of the program. For example, in most states, the child cannot have more than $2,000.00 of countable resources to qualify for Medicaid to pay the child’s medical expenses. In addition to resource restrictions, states also impose income limitations, though the precise numbers vary.

But what about parents, grandparents or other family members facing their own long-term care needs? Though Medicaid law generally penalizes transfers of assets made up to five years before an application for assistance, there are several different ways that gifts can be made to (or into a trust for) a family member with a disability. The rules are more generous for parents seeking to make transfers, but there are options available to grandparents and others, as well.

If a grandparent (or other older family member) needs long-term care, the cost can quickly exhaust his or her life savings. Alternatively, the older family member can earmark those life savings for a grandchild or other relative with disabilities. Medicaid explicitly permits the grandparent to  place his or her savings into a specific type of trust for that grandchild. The section of the Medicaid law approving transfers to benefit an individual with a disability first requires that the beneficiary must be under age 65. If that age limitation is met, transfers may be made into either (1) a trust with a “pay-back” provision effective at the beneficiary’s death, or (2) a pooled trust, operated by a non-profit that will retain some or all of the funds for the benefit of others after the beneficiary’s death. This type of transfer by a grandparent to an appropriate special needs trust (or pooled trust) for a grandchild with a disability can accomplish two goals simultaneously: the grandparent can immediately qualify for Medicaid assistance with long-term care costs, and the grandchild can receive benefits from family wealth without endangering his or her own public benefits.

The parents of a child with disabilities have two additional choices. As with grandparents, the parent who seeks assistance with his or her own long-term care can place life savings into a “payback” or pooled trust for his or her child with a disability. Alternatively, however, a parent can also make an outright gift of any amount of funds to his or her child with disabilities, without the transfer adversely affecting the parents’ own eligibility for Medicaid. An outright gift, however, is usually appropriate only if the child is not receiving government benefits, and is able to manage the funds directly.

If the child with a disability is receiving government benefits, Medicaid also permits the parent to place his or her assets into a “sole benefit” trust for the child. Most states require that the payments from the trust be made based on the beneficiary’s life expectancy; that can mean that more must be paid out each year than the parent would prefer. Still, to the parent facing his or her own long-term care costs, the end result can be much more attractive. If money remains in the trust at the child’s death, the remaining assets can be distributed to other family members rather than paid back to the state Medicaid agency.

All of this assumes that parents or grandparents are seeking to transfer assets while they are still alive, in order to qualify themselves for Medicaid assistance. If they are planning for their own deaths, and especially if long-term care costs are not a major concern, both parents and grandparents can leave whatever part of their estate they wish to a purely discretionary special needs trust for the benefit of the child. Since the child with a disability has no legal right to force the trustee to spend anything on his or her behalf, neither Medicaid nor SSI considers the trust when determining the child’s eligibility. On the death of the child with a disability, whatever is left in the special needs trust can go to whomever the parent or grandparent designates.

Parents and grandparents have numerous options to plan for long-term care in ways that preserve funds for a child with disabilities. The most appropriate option depends on the financial, family, and health circumstances of the parent or grandparent and the disability, support system, and government benefit status of the child. An attorney experienced in elder law and special needs law can provide the information and assistance needed to best meet the needs of the child and parent or grandparent.

About this Article: We hope you find this article informative, but it is not legal advice. You should consult your own attorney, who can review your specific situation and account for variations in state law and local practices. Laws and regulations are constantly changing, so the longer it has been since an article was written, the greater the likelihood that the article might be out of date. SNA members focus on this complex, evolving area of law. To locate a member in your state, visit Find an Attorney.

 Requirements for Reproducing this Article: The above article may be reprinted only if it appears unmodified, including both the author description above the title and the “About this Article” paragraph immediately following the article, accompanied by the following statement: “Reprinted with permission of the Special Needs Alliance –” The article may not be reproduced online. Instead, references to it should link to it on the SNA website.