We set up the legal aspects of a supplemental needs trust for #1 several years ago — including a taxpayer ID for the trust. Then we kind of dropped the ball; I don’t think I quite understood the next steps in setting it up.
Today we reviewed current law with a specialist attorney. This is much too complex a topic for me to fully describe in a blog post tonight, but I’ll share some of the key points I wrote about.
- Special needs trusts, supplemental needs trusts, and, I think, the new 529 ABLE plans all require proof of disability, specifically the inability to work with reasonable supports. (If you think about this too much your head will hurt — especially given current fashion (consensual hallucination) for non-adaptive workplace employment.)
- The assumption behind all of these plans is that #1, sooner or later, receives SSI benefits of $720/month and medical assistance (yeah, extreme poverty). The old-school approach was for the $720 to be paid to a care business which would use it for room and board and provide $92 (precisely) back for spending money. That approach is now being replaced by fairy dust and wishful thinking by something else that nobody quite understands yet.
- Somewhere to the side of these SSI payments are something called “waivers”; funds that can be used to pay for a personal care attendant. There used to be a special waiver program for developmental disability but those funds are exhausted. Now there’s one underfunded program of waivers that covers both physical and cognitive disability (CADI). These are not relevant for us quite yet.
- The “best” way to establish legal disability, and hence eligibility for what we’re interested in, is to receive SSI disability. That can take a while. An alternative route is to work with #1’s physicians on some legal disability statements. We’re doing both.
- In general, if you get money when you’re on SSI, through any means, you lose SSI contributions and your maximum bank balance is $2,000. Except see below.
- Special needs trusts are not of interest to us. These are funded by the disabled person’s money, typically as the result of a legal settlement.
- 529 ABLE plans are not yet operational. There’s real uncertainty about how much supervision/independent control there will be, and fees are likely to be relatively high. These can be funded at a maximum yearly contribution of $14K and a maximum total balance of $100,000. The money is under the direct control of the named beneficiary — which for #1 would mean huge candy purchases. If the beneficiary dies the balance typically goes to the state. I’m not clear on exactly what 529 money can be used for, I believe housing and education are the big ones. We’re not focused on these yet but depending on what they can be used for they might be a complement to supplemental needs trust.
- 529 ABLE plans can have tax-free investment growth, but unlike educational 529s they can’t be transferred.
- Supplemental needs trusts are what we’re doing now. Money from the supplemental needs trust doesn’t reduce benefits as long as it’s not paid directly to #1 and it’s used to buy “things”, like clothing and bicycles and iPhones and mobile service — but not “food or shelter”. Not shelter, that is, except that the trust can “contain” (own) the title to a residence. A supplemental needs trust has an associated taxpayer ID (the attorney gets this).
- The Supplemental Needs Trust is basically funded by our will. So there’s not much in it until we both die.
- The big deal with a Supplemental Needs Trust is real estate. Assume we buy a residence that #1 and others live in. While we’re alive we’d typically own it and he’d pay rent (legal requirement) out of SSI payments. When we die the Title is willed to the Trust, presumably along with money to pay taxes and the like. I think.
- The supplemental needs trust can be liquidated. There are no tax advantages to this trust.
- A grave problem with 529 plans and special needs children 5/2009
- Sundry notes from a meeting on special needs and the law 5/2009
Our attempt to work with #1’s psychiatrist on disability opinion was a dismal failure. She wanted nothing to do with it. I suspect that might be common. So I think SSI judgment may be only route.