How Do I Protect My Disabled Child?
By Craig Watson, Texoma LIVING WELL Magazine
Grace is a sweet 69-year-old widow. Her husband died recently from a long illness. She has two children: a son, Todd, and a daughter, Kate. Todd is disabled and suffers from mental illness. Although Todd lives in his own apartment, he is unable to work. He receives Food Stamps, Supplemental Security Income (SSI) and Medicaid. Grace has to supplement Todd’s meager income so that he will have enough money for his basic needs. He is a meek, loyal man who faithfully helped Grace care for his father. Her daughter, Kate, lives nearby. Kate is financially secure. Kate has a tendency to bully Grace. Kate called yesterday, cursed at Grace and hung up on her. While Kate regularly checks on Grace, she never calls or visits Todd. Kate was always too busy to help Grace care for her husband. Grace also has a responsible, caring nephew who lives in a nearby state. He regularly visits Grace and Todd.
Grace owns her home, valued at around $100,000. She keeps $10,000 hidden under her mattress, $30,000 in her checking account and $110,000 in a brokerage account. Grace wants to protect her assets if she ever has to enter a nursing home, which she heard can cost $4,800 per month. She would like to keep control of her funds if possible. She desires to leave an inheritance for both children but she is especially worried about Todd because she knows his government benefits are insufficient to meet his needs. She knows that if she leaves Todd an outright inheritance, he will immediately lose his SSI/Medicaid, which would be catastrophic. Grace does not want to leave her assets to Kate to use for Todd because Grace does not trust Kate to care for Todd. Even if Grace trusted Kate, Grace knows that if Kate died, Kate’s will bequeaths her assets to her husband, not Todd. Further, if a divorce occurred, Kate’s husband might get Todd’s money. Grace feels alone and doesn’t know how to solve these problems. Grace decides to make an appointment with her elder law attorney to ask him what to do.
The attorney recommends that Grace establish a Special Needs Trust (SNT) to benefit Todd. If Grace bequeaths her money to this trust, it will allow Todd to benefit from his inheritance without causing him to lose his SSI/Medicaid benefits. If Grace has to enter a nursing home, the attorney explains that Grace will be able to transfer her financial assets into the SNT without incurring a Medicaid “Look back” penalty period. This means that Grace’s gift to the Trust would not disqualify her from receiving Medicaid assistance to help pay for her nursing home expenses. Grace can keep control of her assets up until she dies or has to enter a nursing home. She will also be able to qualify immediately for Medicaid assistance with her nursing home bills and the SNT will keep Todd from losing his government benefits. At Todd’s death, the trust will provide for the assets to be distributed to Kate. Grace decides to ask her nephew and his wife to be trustees of the trust. Although the SNT must be irrevocable, the attorney explains that a clause allowing Grace or Todd to make some changes to the distribution provisions can be included to enhance its flexibility. The elder law attorney suggests that Grace use a special deed to revocably convey a life interest in her house to her son. At his death, the house will pass to her daughter. This deed will avoid a possible Medicaid Estate Recovery Program claim against her house if she needs Medicaid to assist with her nursing home bills. Grace’s property taxes will stay the same for the rest of her life and both her son and daughter are likely to enjoy very favorable capital gains tax if and when they sell the house.
Grace experiences a flood of relief when she realizes that the elder law attorney’s plan to use a Special Needs Trust meets all of her goals: asset protection for her assets for the rest of her life and during Todd’s remaining life so that he can receive supplemental income while also keeping his government benefits. Her estate will even avoid probate!
Craig Watson’s legal practice is focused on Estate and Tax Planning, Probate, Guardianships, Elder Law and Corporate Law. Formerly a CPA, he has 23 years of experience as an attorney. He can be reached by calling 903-813-8500 or at craigwatsonlaw.com.