For families of children with disabilities, managing assets to preserve government benefits requires careful planning. Programs like Supplemental Security Income (SSI) and Medicaid are essential resources that provide financial and healthcare support. However, these benefits often come with strict asset limits. Missteps in understanding these rules can jeopardize your child's eligibility.
Let’s explore common pitfalls, strategies for success, and how thoughtful planning can protect your child’s future.
How do assets affect government benefits?
Government programs like SSI and Medicaid have means-tested eligibility requirements, meaning they are only available to individuals with limited income and resources. For example:
- SSI asset limit : Recipients are typically limited to $2,000 in includable assets for individuals and $3,000 for couples.
- Medicaid eligibility : Many states align Medicaid asset limits with SSI, though some have variations under specific programs or waivers.
Includable assets are cash, savings accounts, investments, and property that isn’t your primary residence. Exceeding these thresholds—even unintentionally—can disqualify your child from these programs. In-kind support (such as free housing or groceries) and trust distributions may also impact eligibility.
For example, assume your child receives a $10,000 legal settlement or is gifted a $5,000 savings bond. Without proper planning, these funds could make them ineligible for SSI or Medicaid until the excess assets are spent or transferred into an appropriate financial vehicle.
What are common pitfalls to avoid?
Families often encounter these common mistakes, which can disrupt government assistance:
- Direct gifts or inheritances : Money given directly to your child—whether through gifts or inheritances—is considered an includable asset and can exceed allowable limits. Even small gifts may create eligibility issues. For example, if a well-meaning relative leaves your child $2,500 in their will, it would put them over the SSI asset limit and could result in suspended benefits.
- Savings accounts : Placing money in accounts like a Uniform Transfer to Minors Act (UTMA) or Uniform Gift to Minors Act (UGMA) account under your child’s name may seem like a good way to save for their future. However, these funds are considered includable assets once your child becomes the account owner, potentially making them ineligible for government benefits.
- Unstructured financial support : Covering your child’s expenses without careful planning can also lead to issues. For example, paying for their rent, groceries, or other living expenses out-of-pocket could be considered “in-kind support” by SSI. This could result in a reduction in their monthly benefits.
- Lump-sum payments : Settlements, back payments from SSI, or large gifts must be handled carefully. These lump-sum amounts can quickly exceed the $2,000 asset limit if not transferred into a protected account or used for eligible expenses.
These pitfalls highlight the importance of thoughtfully planning your child’s financial future to avoid unintended consequences.
What strategies can help preserve benefits?
Implementing the following strategies can help manage your family’s finances while preserving your child’s access to government programs:
Special needs trust (SNT) : A special needs trust (SNT) is a legal tool that allows your child's assets to be set aside without affecting their eligibility for means-tested programs. Funds held in an SNT are not considered includable assets as long as they are used for qualified expenses, such as medical care, education, or personal care.
It’s important to understand the different types of SNTs:
First-party SNTs : These are funded with your child’s assets, like a legal settlement or inheritance. These trusts are irrevocable and must include a Medicaid payback provision upon the child’s death.
Third-party SNTs : These trusts are funded by family members through gifts or inheritances. Unlike first-party SNTs, they do not require Medicaid reimbursement. They are commonly used in estate planning to ensure that assets left to a child with disabilities do not impact their benefits.
Working with a qualified attorney to establish the correct type of trust is essential for compliance with state and federal regulations.
ABLE accounts : Achieving a Better Life Experience (ABLE) accounts are tax-advantaged savings accounts for individuals with disabilities.
Contributions up to $18,000 annually (as of 2024) do not count toward the SSI asset threshold, provided the account balance remains under $100,000.
ABLE accounts can be used for disability-related costs, including housing, transportation, education, and assistive technology. For example, if you deposit $10,000 into an ABLE account, it can be used to purchase a wheelchair, cover tuition, or pay for therapy sessions—all without affecting eligibility for government benefits.
ABLE accounts are flexible for managing smaller sums of money, like holiday gifts or tax refunds.
Carefully plan inheritances : Rather than leaving assets directly to your child, designate a special needs trust or ABLE account as the beneficiary. This ensures inheritances are protected and will not disqualify your child from receiving benefits.
Coordinate financial gifts : Inform family members and close friends about the importance of directing financial gifts to a special needs trust or ABLE account. For instance, instead of giving cash for a birthday or graduation, loved ones can contribute directly to an ABLE account.
Monitor account balances : Regularly check your child’s financial accounts to ensure their total assets remain below the SSI and Medicaid thresholds. Being proactive can help prevent unintentional disqualification from benefits.
Families can also benefit from educating themselves about state-specific rules for Medicaid and SSI. Regulations vary, so understanding the nuances of your state’s requirements can help you make informed decisions.
Final thoughts
Preserving government benefits for your child with a disability requires proactive planning and attention to detail. Avoiding common pitfalls—such as direct gifts, unstructured financial support, or improper accounts—and utilizing tools like special needs trusts and ABLE accounts can safeguard these crucial resources.
Financial planning for a child with disabilities is a long-term commitment. Staying informed about changes to benefit rules, regularly reviewing your strategy, and ensuring compliance with regulations will help protect your child’s access to vital support.
With careful planning and the right strategies, you can secure your child’s financial future while maintaining the government benefits they need to thrive.
