It’s been my privilege to be brought alongside a number of military families who have cared for adult disabled children all of their lives. The selflessness, love, patience, perseverance and yes, courage of these families leaves me in awestruck admiration. Greater love hath no one . . .
The reason I’ve come into these families is that they face unique estate planning problems. Mom and Dad (or grandma and grandpa) won’t always be around, and for many institutionalizing a child is unthinkable. There are all sorts of disabilities — physical, cognitive, psychological and combinations of the three (such as cerebral palsy) which might make an adult child unable to live independently or to hold down a paying job. Hence, they disabled child may have to rely on Medicaid and Supplemental Security Income (SSI).
Eligibility for these benefits is means-tested. That is, there are strict limitations on how much you can have in total assets and monthly income depending on the nature of the child’s entitlement and disability. Both SSI and Medicaid are designed to help the indigent or near-indigent who have not had sufficient work history to qualify for Social Security Disability. These are often children with congenital or childhood-onset conditions. Because SSI and Medicaid are means-tested, should Medicaid/SSI recipients receive a bequest outright it may have the automatic result of disqualifying them from further assistance until the money is used up.
Further, if the recipient dies with some of that money there’s a good chance that Medicaid will lay claim to it. Hence, outright testamentary bequests to an incapacitated or disabled child or grandchild may have the strange result of actually causing long-term financial harm.
There is a way, however, to provide something for our loved ones in this position without jeopardizing their entitlements. It’s called a Supplemental Needs Trust, or Disability Trust. It can be created during the lifetime of the donor, or by will. As a rule, it will require the approval of a court and the Colorado Department of Health Care Policy and Financing. Once approved, it puts the money into the hands of a third-party trustee outside the reach of state Medicaid authorities during the lifetime of the beneficiary because it’s not counted as a resource belonging to the beneficiary.
As you might expect, Colorado and Federal law define and sharply circumscribe the terms of such trusts, confining distributions to the beneficiary to what might be termed “extras.” While distributions cannot be expended for those things which Medicaid pays for, or for staples such as food, clothing, and lodging, they can fund vacations, companionship, gifts, and “treats” that enrich the lives of the beneficiary without supplanting or jeopardizing Medicaid-resourced payments or SSI. As well, income in excess of that which is permissible can also sometimes be sheltered through the creation of a Miller or Income Trust. That permits a beneficiary who is receiving income in excess of the permissible amount, but less than a certain maximum, to collect the maximum permissible to qualify for benefits with any remainder being held in trust for the benefit of Colorado Medicaid upon death. Retirees with an adult disabled child have long been able to designate that child as the beneficiary for the Survivors Benefit Plan.
The problem until now is that the receipt of SBP could and often did act to cut off SSI/Medicaid benefits. But good news, part of the 2015 DOD Authorization Act enables a parent to designate the Supplemental Needs Trust to be the beneficiary of SBP payments on behalf of a disabled child. Properly done, this infusion of cash into a SNT can be used to satisfy the purposes of the SNT without running afoul of income and resource limitations. It has to be done right, of course, but the point is that until now it could not be done at all. A DoD Memorandum has recently issued implementing the legislation and can be found at
Possibly this column spends too much time brooding over the bad news. This is good news, and for some of you out there represents a signal change in your estate-planning opportunities to care for a disabled child
Possibly this column spends too much time brooding over the bad news. This is good news, and for some of you out there represents a signal change in your estate-planning opportunities to care for a disabled child