Special Needs Planning Issues Following Divorce

Divorce can be complicated, frustrating, disappointing, expensive, along with a whole range of other emotions, as anyone who has endured this type of proceeding can attest. As difficult as the issues can be in a divorce proceeding, can you imagine what happens when divorce involves a child with a disability?

This article focuses on one case study to illustrate how much more difficult the issues can be when a child with a disability is involved in the marital split, and how important it is to have someone knowledgeable in government benefits and special needs planning issues participate in the proceedings.

The Facts
Consider the following situation: Husband and wife divorced in 1996, when their child, who is disabled, was 4 years old. The husband was ordered to pay approximately $2,800 per month in child support (considered to be about three times an ordinary child support order based upon his assets and income) for the life of the child. While it is unusual to see lifetime child support payments, and the award was larger than is customary, the husband agreed to this primarily because of the guilt he felt around the divorce. He also knew that his daughter was disabled and would require as much help as possible.

Fourteen years later, in 2010, the daughter turns 18 years old. The husband has since remarried and had another child. He feels he can no longer continue to make child support payments at the current level, and in fact his current wife now assists him in making these payments each month.

The husband wishes to seek a modification of the child support award, and he hires the attorney that handled his divorce years earlier to file the court papers seeking a downward modification of child support payments. The theory behind seeking this downward modification of child support payments is twofold. First, the husband would like to argue that since his daughter has just turned age 18, she can now qualify for Supplemental Security Income (SSI) benefits. Second, his daughter could receive services through a Medicaid waiver program, but her income from the child support payment could prevent her from qualifying. Therefore, the husband would like to know if establishing a court-ordered special needs trust to receive the child support payments would protect the child support payments from being counted as income to the daughter.

Can the Daughter Qualify for SSI?
During the course of the proceedings, the wife appears to be the only person testifying as to the question of whether her daughter can qualify for SSI benefits and the utility of creating a special needs trust for her daughter. According to the wife, her daughter cannot qualify for SSI benefits due to the so-called deeming rules, pursuant to which a parent’s income and assets are deemed to be available to the child for purposes of determining the child’s eligibility for SSI benefits. The husband argues that the wife should apply for SSI for their daughter, but she refuses to do so, citing the deeming rules as an obstacle to her daughter’s eligibility, and arguing that her own work income and $400,000 in assets will result in a denial of eligibility.

Without expert testimony, the court may have determined that the daughter was not eligible for SSI benefits, based solely on the testimony of the wife, who had apparently “done her own research on the issue.” In fact, the deeming rules stop when a person turns age 18 under CFR Sections 416.1165 and 416.1851, and their daughter could qualify for an SSI benefit of up to $674, plus any additional state supplement. With this testimony now on the record, the husband is able to argue, credibly, that his daughter is entitled to a monthly SSI benefit of $761 and, if she were to avail herself of this benefit, then this increased income should be taken into account by the court in evaluating husband’s request for a downward modification of the original child support payment.

Can a d4A Trust Hold the Daughter’s Income?
The second major issue in this case pertained to the daughter’s income surplus for Medicaid purposes. As a Medicaid recipient, daughter’s income (solely in the form of child support payments she received from her father) could have prevented her from receiving Medicaid benefits as an adult. The husband wanted the court to order the creation of a self-settled special needs trust under 42 USC Section 1396p(d)(4)(A) (often referred to as a “d4a trust”), and have the child support payments irrevocably assigned into the newly established trust, thereby eliminating any surplus income.

Unfortunately, the husband and wife could not agree on the establishment of a d4A trust. The wife questioned whether such a trust could legitimately receive child support payments. She also testified that she may move to a different state to be with family, and that such a move would require a payback to the first state, reducing available trust funds that would be needed to care for her daughter. What the wife didn’t realize was that under the Social Security Program Operations Manual System (POMS) Section SI 01120.200G(1)(d), an irrevocable assignment of child support payments (i.e., as a result of a court order), is not income for SSI purposes, and therefore would not count for purposes of determining daughter’s SSI or Medicaid eligibility, or the amount to be received under either program.

In addition, there is no such requirement for payback when a Medicaid recipient and d4a trust beneficiary moves from one state to another, a point that was made through expert testimony. The only time payback to any state would be required is when the disabled daughter dies.

The Lesson Learned
The issues in the case study above make it clear that when a child with a disability becomes part of a divorce proceeding, difficult issues arise that warrant the expertise of elder law and special needs planning attorneys. Matrimonial or family law attorneys will very likely not possess the expertise needed to address these issues.

Please contact us if you would like additional information on any of the topics addressed in this newsletter or if you would like to discuss a specific issue.

To comply with the U.S. Treasury regulations, we must inform you that (i) any U.S. federal tax advice contained in this newsletter was not intended or written to be used, and cannot be used, by any person for the purpose of avoiding U.S. federal tax penalties that may be imposed on such person and (ii) each taxpayer should seek advice from their tax adviser based on the taxpayer’s particular circumstances.

Please feel free to call Wiggen Law Group at 919-680-0000 if you have any questions about this or any matters relating to elder law or special needs planning.

April is National Autism Awareness Month

In celebration of National Autism Awareness month, the Autism Society is launching several awareness activities this month. National Autism Awareness month was established in the 1970s to highlight the growing need for concern and awareness about autism.

April is a special opportunity for everyone to educate the public about autism and issues within the autism community. With 1 in 110 Americans now being diagnosed, the need for services and supports is greater than ever.  Find out how you can raise awareness here.

Bullying and Students With Disabilities

Excerpt from StopBullying.gov: (click for entire article)

Like bullying in general, bullying of students with disabilities represents both a civil rights and public health challenge. Amongst the possible effects of bullying the U.S. Department of Education (ED, 2010) includes lowered academic achievement and aspirations, increased anxiety, loss of self-esteem and confidence, depression and post-traumatic stress, deterioration in physical health, self-harm and suicidal thinking, suicide, feelings of alienation, absenteeism and other negative impacts, both educational and health related. While both students with and without disabilities face significant negative emotional, educational and physical results from bullying, students with disabilities are both uniquely vulnerable and disproportionately impacted by the bullying phenomenon. Unaddressed bullying of vulnerable students can be expected to have serious negative impacts on the school experiences of all children – social impacts can be expected in addition to individual impacts. Despite this, there exists a dearth of both research and policy focusing on eliminating the bullying of students with disabilities. Furthermore, evidence suggests that existing legal and policy tools available to address bullying against students with disabilities remain significantly under-utilized.

SSA Adds 38 Conditions to Those Qualifying for Automatic Disability Benefits

In certain circumstances the Social Security Administration (SSA) will fast-track a disability benefits application through a process known as Compassionate Allowances, usually because the applicant is suffering from a severe disability that may be life-threatening. The original Compassionate Allowances program defined 50 conditions, including many cancers and other terminal conditions, that obviously met disability standards and led to a much faster disability benefits application process. As of March 1, 2010, the SSA will add an additional 38 conditions to the Compassionate Allowances list, greatly expanding the number of people who are eligible for the program.

Although most of the conditions on the revised list are very rare, the SSA has included early-onset Alzheimer’s disease as one of the new conditions, meaning that people who contract Alzheimer’s before turning 65 could receive disability benefits immediately. Adding the new conditions to the initial list could result in an additional 40,000 to 50,000 new fast-tracked disability benefits approvals in 2010 alone. Social Security Administrator Michael Astrue explained that the SSA “will continue to hold hearings and look for other diseases and conditions that can be added to our list of Compassionate Allowances. There can be no higher priority than getting disability benefits quickly to those Americans with these severe and life-threatening conditions.

To read an article in the Senior Journal about the changes, click here.

To see the list of new conditions, click here.

The original 50 conditions can be found here.

Common Mistakes Parents Make With Special Needs Trusts

I’m on my way out this weekend to California to attend the Academy of Special Needs Planners Annual Conference in San Francisco.  As I’m preparing for my trip, I came across this article from the Autism Support Network which details the most common mistakes parents make with their special needs trusts.  As you may have guessed, one of the biggest mistakes is not having their estate planning prepared by someone who practices in the area of special needs planning.  If you have a loved one with special needs, Wiggen Law Group can assist you with planning designed to enhance his or her quality of life now and in the future.

~Dori

Sad Case Illustrates: When It Comes to Special Needs Planning, Don’t Put Off Till Tomorrow….

Have you been thinking of meeting with a special needs planner to put a plan in place for a child or loved one but you just haven’t made the call? Or have you already met with an attorney and not finalized your plan, even though you swore you would get to it yesterday? If either of these examples sounds like you, then a recent case from New Jersey should make you think twice about waiting to finalize that estate plan that you have been meaning to get to.

Margaret Flood had four children, including two daughters with special needs who received government benefits. Concerned about leaving an inheritance directly to the daughters with special needs, and thus cause them to lose their benefits, Ms. Flood consulted with an attorney about the possibility of creating a special needs trusts for them. However, Ms. Flood did not follow up with her attorney after the initial meeting, and time passed.

Tragically, Ms. Flood passed away before finalizing her plan. Because she died without a will of any kind, Ms. Flood’s property became subject to New Jersey’s intestacy law. An intestacy law is a state statute that dictates who will receive your property if you die without a will (some property, like retirement accounts and jointly owned property, passes outside of this system). Under New Jersey’s law, Ms. Flood’s $480,000 estate passed in equal shares directly to all four children, including the two daughters who could not receive funds without compromising their vital government benefits.

The administrator of Ms. Flood’s estate attempted to undo the damage by filing an action in court seeking to create and fund two special needs trusts to hold the inheritances for Ms. Flood’s daughters with special needs. The administrator argued that it was Ms. Flood’s intent to create the trusts, and since her intent was clear, the court should put her probable plan into effect and preserve her daughters’ benefits. This legal theory is sometimes used when a will or a trust is unclear and needs to be reformed after the fact in order for the instrument to function as its creator intended. In this case, the court allowed the administrator to establish the special needs trusts even though Ms. Flood had no will at all.

But Ms. Flood’s heirs would run out of luck when the case was appealed to the Appellate Division of the Superior Court of New Jersey. That court reversed the lower court’s decision and prevented the funds from flowing into the special needs trusts for Ms. Flood’s daughters. The appellate court ruled that the trial court overstepped its bounds by bypassing the intestacy laws, and it further ruled that under New Jersey law, there was no option — Ms. Flood’s daughters must receive their inheritance directly, regardless of the effect that might have on their government benefits.

Ms. Flood tried to do the right thing and simply ran out of time to put a plan in action. Don’t let this happen to you; if you are thinking about forming a special needs plan, there is no time like the present.