Estate Planning for Disabled Persons

Estate Planning for Disabled Persons
Hill, Glowacki, Jaeger & Hughes, LLP
Law Offices

1. What is disability, for estate planning purposes?

There are many kinds: blindness, physical disability, diminished mental capacity, mental illness or disorders, or a combination of more than one of these. Some disabilities rise to the level that meet the Social Security Act's definition of disability. If so, the affected individual may qualify for SSI (Supplemental Security Income) or SSDI (Social Security Disability Income).

2. How does disability affect estate planning?

A disabled individual often can't manage assets and income without assistance. In some cases, the disabled individual requires the protection of guardianship. Individuals with disability or diminished capacity sometimes qualify for and receive government benefits, such as SSI, SSDI, Medicare, Medicaid ("MA", also known as Medical Assistance or Title 19), COP, CIP and/or other similar benefits. Some but not all of these benefits programs are unavailable to individuals with assets over $2,000 plus certain exempt assets. There also are income limitations for the benefits programs with asset limitations.

If an individual receiving SSI and MA receives income or a gift or inheritance, s/he may lose those government benefits. With proper planning, there are legal ways to avoid this problem. Thus, parents, grandparents, siblings and other relatives or friends desiring to provide for their disabled family member or friend should see an attorney experienced in estate planning for disabled persons, who stays current with the constantly changing federal and state laws, regulations and policies concerning qualification for these benefits programs. Even if a disabled individual does not receive SSI or MA, acquiring income, a gift or an inheritance may create problems due to the recipient's inability to manage the increased financial resources. Appropriate estate planning can avoid these potential problems, too.

3. What kinds of estate planning tools are available to protect transfers to disabled individuals?

If the source of the funds is a third party:
- Testamentary special needs trust for the disabled person
- Stand-alone living ("inter vivos") trust for the disabled person
  - Funded during lifetime by trust settlor or others
  - Funded at settlor's death
- Special needs subtrust inside a revocable living trust, funded at death of settlor
- Wisconsin Family Community Trust for the Disabled account
  - Funded during donor's lifetime
  - Funded at donor's death
- Eventually, Wisconsin will have a pooled disability trust that meets the requirements of OBRA 1993, in which disabled individuals may have accounts. Hopefully, this "(d)(4)C" trust will have the option for account funding by third parties.
If the source of the funds is the disabled individual's personal injury settlement or an inheritance received directly:
- Special needs disability trust with provisions for reimbursing the state upon death
- Eventually, Wisconsin's pooled "(d)(4)C" trust

Because of the variety of trust possibilities, the unique circumstances of each disabled beneficiary, and the different benefits program qualifications, it is imperative to consult and work with an knowledgeable and experienced elder and disability law estate planning attorney. It is much easier and less expensive to plan appropriately from the outset than to correct problems after the plan becomes irrevocable and the disabled person loses government benefits.

4. What can be done to protect assets if a disabled individual is due to receive directly a personal injury settlement or an inheritance?

If the individual is on SSI and MA, continued qualification will be lost within a month of receipt, if not earlier.

There are legal ways to divert settlements and inheritances to a special type of trust that will avoid disqualification from SSI and MA. These are sometimes called (d)(4)A trusts. At the death of the beneficiary, the state is entitled to receive reimbursement for MA and COP benefits provided to the beneficiary.

These trusts are highly individualized and can assist in preserving a long term source of funds for the non-support needs of the beneficiary.

These trusts, authorized by the federal OBRA 1993 legislation, must be approved by a court, which can order payment of the settlement or inheritance to the trust.

5. What estate planning can be done if the disabled individual is your spouse?

Most trusts will prevent the disabled spouse from qualifying for MA. However, an estate plan which includes a testamentary special needs trust may preserve assets for the non-support needs of the surviving disabled spouse who has already qualified for MA. A marital property agreement and a financial durable power of attorney including several special powers are both often appropriate.

Updated May 9, 2001