In negotiating matrimonial settlements, it is essential that families of individuals with disabilities are aware of associated special needs planning issues.
Children and adults with disabilities often rely on means-tested Federal and State government programs for health and financial benefits. Means-tested government programs have limits on the income and resources that a qualifying individual can have. In New York, such programs include supplemental security income (SSI)1 and Medicaid.
SSI provides a monthly stipend to an individual with disabilities who has limited countable resources and monthly income. The stipend is intended for use towards basic needs including food and shelter. A child under eighteen (18) will only qualify for SSI benefits if his or her parents’ countable resources and monthly income are below the state’s eligibility requirement.2 Upon turning eighteen (18) a child with disabilities is viewed independently for SSI purposes. As a result, the amount of his or her SSI stipend will depend on individual factors, including the amount he or she needs for monthly rental and household expenses,3 the amount he or she earns from employment (if employed), and the amount of cash, gifts or other monthly income he or she receives.
Medicaid is a government program which provides medical assistance for persons who meet income guidelines and who have limited resources. Many individuals with disabilities rely on the Medicaid program to meet their basic health needs. Medicaid is also used by many Americans as they age in order to fund community based nursing care and/or nursing home care.
Divorce settlements usually delineate specific financial responsibilities of each party towards the children’s care and schooling, either through the age of majority and/or through college. Often, the non- custodial parent’s responsibility takes the form of a monthly child support payment. In many cases it is also advisable for the settlement to require that each party pay for a life insurance policy on the life of the other, to ensure that therewill be enough money to support the children in the event of the untimely death of one of the parties. When the divorcing couple has a child with special needs, the divorce settlement often recognizes that the child will require support into adulthood and makes provisions for support beyond the typical age of majority.
According to Social Security regulations, thirds of child support payments for a child under eighteen are considered income to the child. Once a child with disabilities turns eighteen, one hundred percent of child support payments are considered countable income of the child. Therefore, child support payments from the non-custodial parent that are made directly to the custodial spouse are includable when calculating the child’s income for purposes of SSI and Medicaid eligibility. Additionally, since the purpose of child support is for food, shelter and other basic needs of the child, and the purpose of SSI is for the same items, Social Security will reduce a child’s SSI payments by the amount of child support dollar-for-dollar. In that way, child support payments may have the unintended consequence of denying or reducing the child with disabilities’ access to means-tested benefits.
Consider the following two examples pertaining to a child with disabilities who is under the age of 18:
Ex. 1: O. is a 10-year-old with severe Autism. He lives at home with his father. O.’s father’s income and resources are low enough to make O. eligible for SSI. O.’s mother does not provide any child support. O. receives $744 in SSI monthly, currently the highest amount available to an indi- vidual living in the household of another in New York.
Ex. 2: Same facts as in Ex. 1, except here, O.’s mother pays $300 of child support monthly. Two-thirds of that payment, or $200, is countable for SSI purposes and offsets the SSI payment dollar-for-dollar. As a result, instead of receiving a monthly SSI check for $744, O.’s monthly payment is reduced to $544.
The damage of outright child support payments is magnified when a child with disabilities turns 18.
Ex. 3: M. is 18 years old with developmental disabilities. She lives at home with her mother and attends a day habilitation program in the local community. There is a rental agreement so that M. contributes monthly towards household expenses. She has no income from employment, doesnot have reportable cash or gifts and her mother receives no child support. In this case, M.’s income and resources make her eligible for SSI and Medicaid. She receives $744 in SSI monthly, currently the highest amount available to an individual living in the household of another in New York.
Ex. 4: Same facts as in Ex. 3 except here, M.’s father pays $400 of child support monthly. As M. is over 18, the entire $400 child support payment is countable forSSI purposes, and offsets the SSI payment dollar-for-dollar. As a result, instead of receiving a monthly SSI check for $744, M.’s monthly stipend is reduced to $344.
There are legal options available to avoid the above scenarios, and to ensure that child support payments do not jeopardize a disabled child’s means-tested benefits. Attorneys representing such couples mustbe cognizant of the interplay between child support and means-tested benefits and the available options in order better advise their clients.
A supplemental needs trust (SNT)5 is the most basic and crucial planning tool for families of individuals with disabilities. SNTs may be established for a loved one with chronic or severe disabilities. They allow family members or others to set aside money for a loved one with disabilities without jeopardizing government benefits. By law, SNT funds are available only to supplement (and not to supplant) government benefits, meaning funds can be used only for those items that cannot be paid for using government benefits.
There are two basic types of SNTs. First party SNTs, also known as self-settled or payback trusts, are funded with the disabled individual’s own funds. In order to establish a first party SNT, a number of criteria must be met: (1) the individual must be under 65 years old, (2) the individual must be disabled as defined in the Social Security act, (3) the trust must be for the benefit of the individual with disabilities, (4) the Grantor must be a parent, grandparent or legal guardian of the individual with disabilities (or a court), and (5) the trust must have a provision providing that state entities such as Medicaid that expend funds on the individual with dis- abilities during his or her lifetime must be repaid out of any funds that remain upon the individual’s death. Third party SNTs are funded with the funds of someone other than the individual with disabilities. Grandparents, parents or friends who want to leave money for use by an individual with disabilities can utilize an inter-vivos third party SNT.
Divorcing parties may consider establishing an SNT to hold monthly child support payments. The use of an SNT is only recommended when a child would otherwise qualify for government benefits—if a child is under 18 and his or her parents’ finances would prevent the child from receiving government benefits anyway, an SNT is not necessary and would place unnecessary restrictions on the money. However, for a child or adult with disabilities who would otherwise be eligible for government benefits, assigning child support payments to an SNT would allow for child support payments while still maintaining the child or adult’s government benefit eligibility.6 The assignment must be irrevocable.7 For purposes of SSI, child support is viewed as the child’s money. Therefore, if the child support will be assigned to an SNT, a first party SNT with payback provisions must be established. The assignment can be made through court order, or through a post-order agreement between the parties.
Third party SNTs may be utilized as part of divorce agreements as well. As discussed previously, parties sometimes agree to maintain life insurance on each others’ lives, in order to ensure a surviving party will have necessary finances in the event of the untimely death of one of the parties. When a child with special needs is involved, the parties may want to consider naming an inter-vivos third party SNT as a beneficiary of the life insurance policy.
Though outside the scope of this article, it is important to note a number of other areas pertaining to children with disabilities of which attorneys representing divorcing couples should be aware.
1.Guardianship—Parties should agree as to who will be appointed guardian and successor guardians when a child with special needs reaches the age of majority.
2.Special Education Decision Making—Parties should agree on which parent will have the
authority to make decisions pertaining to the education of the child with special needs.
3.Estate Planning—Parties may want to agree on certain estate planning provisions regarding the child with special needs. Depending on whether or not inter-vivos SNTs have been established, a testamentary SNT may be advisable.
According to a recent New York Times article, more Americans over the age of 50 are divorced than widowed.8 For attorneys advising older divorcing couples, it is important to realize that Medicaid is the largest payer for nursing home care and community based health care services in the country. The goal of preserving Medicaid eligibility should therefore inform the structure of the divorce agreement.
Under N.Y. Medicaid laws, alimony received by a Medicaid beneficiary, regardless of whether that person is disabled, will be viewed as income and will be taken into consideration when deciding whether he or she will remain eligible for Medicaid services. Moreover, for individuals applying for nursing home Medicaid, there is a five-year look-back period. Medicaid will look at any transfers made within the five year period preceding an individual’s application and if non- exempt transfers above the Medicaid threshold were made, Medicaid will impose a penalty period commensurate to the amount of money transferred. During the penalty period, an individual will be denied Medicaid benefits and will be responsible to pay for nursing home care out of pocket.
Older divorcing couples who do not anticipate using Medicaid benefits within five years can agree to a lump sum payment in lieu of continuing monthly alimony/maintenance. The receiving party can conceivably quickly spend down the money on real or personal property purchases that are exempt from Medicaid’s calculation of income or resources. The risk inherent in this approach is that if the transfer or requires nursing home Medicaid within five years, Medicaid may attempt to impose a penalty period commensurate with the value of the alimony paid. However, it could be argued that the transfer was made for a purpose other than qualifying for Medicaid.
Another option is to structure the divorce settlement so that alimony funds go directly to an SNT. Funds in the SNT will be available to provide for any need of the beneficiary that is not met by Medicaid or other government benefits. An SNT is beneficial with regard to SSI as well, as according to SSI rules any funds paid directly to a trust as a result of a court order are not considered income. While putting funds in an SNT does limit what the funds can be used for, for many older couples it may be the best route to preserving eligibility for crucial means-tested government benefits.
1. See 42 USC 1381 et seq.
2. In New York, the 2014 monthly limits are $2000 for individuals and $3000 for couples.
3. If a valid rental and household agreement is created, an adult with disabilities who lives at home may still be considered liable for rent and household expenses.
4. Program Operation Manual Systems (POMS) SI 00830.420 Child-Support Payments.
5. Estates Powers and Trusts Law (EPTL) 7-1.12.
6. POMS SI 01120.200 G.1.d.
8. Roberts, Sam,Divorce After 50 Grow More Common, September 20, 2013. URL: http://www.nytimes.com/2013/09/22/fashion/weddings/divorce-after-50-grows-more-common.html