A recent study from the Institute on Disability in New Hampshire reported that in 2015, approximately 10% of the adult population under 65 was disabled. Although those statistics are the median for the United States as a whole, in some places those statistics may be as much as doubled. Kentucky, for example, had approximately 150-200% greater adult disabled population than the national average.
Individuals who are unable to work because of disabilities, particularly those with congenital conditions, often survive on government benefits. The benefits may be disability based on their own or a parent’s work history, Supplemental Security Income, Food Stamps, Housing Assistance, and government-sponsored health insurance. However, the non-financial benefits are often much greater, as they may provide consistent therapy, socialization, and general care.
Parents with disabled adult children find themselves trying to balance the need to provide lifetime care for their child with the fear and confusion of how to prepare for the likelihood that the disabled child will outlive the caregiver.
There are several good options for preparing a long-term care plan, and every good option should be considered with the individual family’s facts.
Perhaps the most common long-term care plan is to set up a trust for a special needs or disabled child. A third-party trust is a trust that is set up by someone other than the disabled individual, using money that is not the disabled individual’s money. A third-party trust provides a supplemental income for people in a way that can last over a long period of time, and merely supplements other assistance that they may be receiving.
A third-party trust can provide a common beneficiary for all loved ones who desire to provide financial assistance to the disabled individual. Family members can transfer money to the trust during their lifetime, through a will, or through life insurance proceeds. Money left in the trust at the beneficiary’s death can be passed on to other beneficiaries.
First-party trusts, on the other hand, are created and funded using the disabled individual’s own money. These are often created because of a personal injury settlement, or after an individual inherits money or property outright, disqualifying them from receiving benefits. There are complex requirements for setting up the trust, providing proper notice to the state, and appropriate use of the trust funds, as well as age limits. Any money left in the trust at the disabled individual’s death must be returned to the state.
The Achieving a Better Life Experience Act (“ABLE Act”) is a more recent development that allows individuals determined to be disabled before age 26 to set up a special account in order to save and invest income, while still maintaining eligibility for necessary benefits. Although there are limits to the amount that is able to be saved, the tax benefits and the exemption of protected funds provide significant assistance to eligible individuals.
These are only three options of many. If you have a disabled loved one, take time to consider the most important questions that must be answered: Who will care for your loved one if you are unable to? How will they provide for your loved one?
If your plan is to leave money directly to a caregiver with the intention that it will be used for your loved one, consider unintended consequences, such as what will happen if the caregiver later dies and the money goes to their own beneficiaries.
Disabled and Special Needs individuals need special care planning to ensure that they will be protected after the caregiver is gone. The best inheritance you can leave your loved one is the assurance of a long-term plan that works.