One of the more popular posts on the Cinder Cone has been this one about health insurance for young people with disabilities. As the debates about health insurance swirled around Washington this year I wondered whether I’d need to “repeal and replace” the post’s content with whatever scenario emerged from that mess. At this writing, no change is needed.
In related news, we were able to keep Nathan on my medical, dental, and vision insurance after he turned 26 this year. Because a couple of surprises occurred along the way, our story is worth sharing here as a cautionary tale.
Nathan had been on my husband’s insurance from infancy. But when I started working for a large employer last year, it made sense to move Nathan from his dad’s insurance (through a very small business) to my insurance.
Last fall, while Nathan was still 25, I filed the forms to add him to my coverage.
His eligibility was verified by a third party, not by the insurance companies. I provided a scan of his birth certificate, and also had the option of submitting paperwork to prove that he has an ongoing disability.
It was my understanding that filing the proof of disability at the time of enrollment would lead to smooth sailing when Nathan turned 26 several months later. They’d already know he was disabled. No further hassle.
Since earlier in the year we had received the letter from Social Security stating that Nathan was eligible to continue receiving SSI payments, I scanned and uploaded that sucker! What better proof of disability?
A few weeks later, the third party agreed that Nathan was my son. He was added to my medical, dental, and vision coverage. Yay.
Three months prior to Nathan’s birthday this year, imagine my surprise to receive a letter from my dental insurer. It pretty much said, Hey, your son is turning 26 soon, and we’ll drop him unless you can submit “a letter from a medical provider verifying that your dependent is disabled.” Have a nice day.
I was perturbed for two reasons.
First, I thought I’d already covered this with the SSI letter at the time of enrollment.
Second, Nathan no longer has a medical provider familiar with his diagnosis. It’d been years since he’d seen a psychiatrist (= physician). And he’d stopped going to a psychologist (= not a physician) in 2015.
I told the health care facilitator (HCF) for my employer about this puzzling turn of events.
She couldn’t really respond about the third party verification issue, but affirmed that I’d have to come up with the requested documentation now.
But, she added that although I’d received a letter from the dental insurer, I should file proof of disability with the medical insurance provider. If they accepted that Nathan is disabled, the dental and vision insurers would follow suit.
She emailed me the disabled dependent certification form I’d need to submit to my medical carrier.
It was only one page (hooray) but the key section was “to be completed by attending physician.” Dang.
I explained our no-physician situation to the HCF, who checked with the medical carrier. She found out that “if the main provider diagnosing your son is a psychologist, that provider can complete the certification form.”
Yay. I’d had a good rapport with Nathan’s last psychologist, so I didn’t feel too awkward asking him to fill out the form.
I left a voicemail. Two weeks went by with no response. Had he retired, and neglected to shut off the “You have reached the voicemail of Dr. K____. If this is a life-threatening emergency, please hang up and dial 911” message?
I left another voicemail. Another week went by before Dr K called back.
He’d be happy to fill out the paperwork; “I’d do anything for Nathan,” he emphasized. He recapped for several minutes how much he’d enjoyed their sessions, and why he felt Nathan was unlikely to ever hold a job for long. I thanked him profusely, and that night sent him the certification form with a self-addressed stamped envelope.
Two weeks went by. I left another voicemail.
Finally, the sought-after envelope showed up in our mail a week later. Retaining a copy, I sent the filled-out form to the HCF via interoffice mail, and she sent it to my medical insurer.
A few weeks went by, until she emailed: my insurer had accepted Nathan as a disabled dependent. He would continue to be covered.
End of story? Not quite.
I had to contact the HCF one more time a few weeks later, because we’d received another pleasant letter from my dental plan. It was a repeat of the initial letter, except now it noted that Nathan’s 26th birthday was a month away. Had the dental and vision plans gotten word of the medical plan’s decision?
In response, the HCF updated my records in the system to show that Nathan was an approved disabled dependent. That information would be transmitted electronically to my dental and vision carriers.
The whole process was now finished, three weeks before Nathan’s birthday. Whew!
And everything has been fine.
I sent a note to Dr K and an email to the HCF, thanking them for their efforts that resulted in our family’s peace of mind.
Here are a few lessons learned from this mini-saga:
Disability documentation provided to a benefits eligibility verification outfit doesn’t mean that the insurers themselves will automatically be on board.
It doesn’t hurt to clarify the terms used on a disabled dependent certification form. I would have been scrambling even more if I’d assumed we truly needed input from a physician. However, I’m not sure all health plans will include psychologists or counselors under their umbrella of “medical provider.” Best to verify such things early on.
Don’t delay in taking action! I started doing stuff three months before Nathan’s birthday, but as you saw, we only got things finalized with a few weeks to spare. Two months prior to his birthday, my medical carrier had also sent me a letter about my dependent turning 26. Since it ended up taking 2 1/2 months to get everything in place, I’m glad the dental carrier’s letter had arrived at three months prior.
Have you been through disabled dependent certification for your neurodiverse 26-year-old? What was the outcome? Let us know!
One of the biggest decisions you’ll face in setting up a special needs trust (SNT) is naming who will serve as the trustee – in other words, who’ll be in charge of managing and spending money for your adult child after you no longer can. The wise grantor setting up the special needs trust (that’s you!) will consider several factors when making this important choice. Although you can wait to make the decision while the SNT documents are being prepared, giving it some thought beforehand is a good idea.
(Before reading any further, please note that if your adult child has a pooled trust, you’ll be off the hook for choosing a trustee. The nonprofit organization that maintains the pooled trust will appoint a trustee to manage the fund. Go back to Part 3 to learn more about the pros and cons of pooled trusts.)
Most of the time, families create a special needs trust that requires the selection of a trustee. It’s nice to have that control – but how do you choose?
This discussion about SNT trustees on the Nolo website is clearly presented and covers the important points. For those of you who don’t like to follow links, I’ll rephrase what the article says.
Usually, the parent(s) of the disabled child are the trustee(s) of the SNT until no longer able. Once the last parent of your adult child dies or is incapacitated, the trustee you’ve selected – the successor trustee – will have to handle these and other tasks:
- enhance the beneficiary’s life by using the trust fund to purchase goods and services (except food or shelter)
- make the trust fund last as long as possible. Sometimes that can mean saying “no” to a spending request.
- manage the fund to earn dividends or interest
- keep records
- file reports for SSI and Medicaid
- file taxes
Most of us will look to family members as candidates. The ideal trustee would have these attributes:
- be willing to serve as trustee
- be capable of performing the duties well
- be trustworthy to act in the beneficiary’s best interest – as opposed to increasing his or her own wealth
- be willing to follow your wishes, and to follow the laws and rules (no mavericks, please!)
- have familiarity and empathy with the beneficiary – living nearby is a plus, too
- be expected to live years beyond when you check out. For instance, your grandfather is probably not the greatest choice (even if he is as sharp as a tack and fit as a fiddle).
Some of us do not have an individual relative who would meet these important criteria. But, you might have two or more family members who each have some attributes that in combination would fit the bill. Happily, you’re allowed to appoint two or more c0-trustees. That can raise other issues, though: would they work well together, or argue a lot? Also, you’d have to decide whether to allow each trustee to act alone, or stipulate that all trustees must agree to every action regarding the trust.
Your attorney may ask you to name a few candidates and rank them in order of preference. That way, if your first choice dies or has a change of heart, the second person on the list will get to do the honors, and so forth. Perhaps at some later date you’ll want to scramble the order, or add or subtract a potential trustee. No problem – that can be accomplished by updating the trust documents.
If you’re not seeing a willing and able candidate among family members, an alternative is to hire a professional or corporate trustee. They may be found in institutions such as banks, savings and loans, law firms, trust companies, or brokerage houses. While such professionals know how to manage trusts, they may not have much experience with special needs individuals, and they don’t know your special needs individual. Some institutions won’t even agree to the task unless the trust fund is “large enough.” The “large enough” threshold may be on the order of $250,ooo or even $1 million.
Your attorney, special needs financial advisors, and others in the special needs community may be able to recommend professional trustees who have done well for other families.
According to this attorney, the size of the minimum annual fee charged by professional trustees makes them an expensive choice for small trust funds. She suggests pairing a professional and a family member as co-trustees for larger trust funds, and using family members or pooled trusts for smaller SNT funds.
Assuming you select a non-professional as trustee, you’ll want to give him or her as much support as possible. Other than naming a co-trustee, here are some ways to do this:
- use a trust protector or advisor. These individuals have no legal authority over the trust but are knowledgeable about issues such as investment strategies or compliance with SSI and Medicaid rules. The trustee is advised to consult with them for guidance.
- provide a written description of the trustee’s duties. This may be a letter included with the trust papers, a book, etc.
- provide background information about the needs of the beneficiary. It could be a document compiled for the trustee, or maybe a copy of the special needs letter of intent you’ve created.
- name the trustee as a remainder beneficiary of the trust property after the trust ends. While it is thoughtful to provide monetary compensation for his/her work as a trustee, consider whether this arrangement might corrupt how the trustee would manage the fund during the beneficiary’s lifetime. As Nolo puts it, “every dollar spent on the beneficiary is a dollar that the remainder beneficiary won’t receive.”
Here’s how the trustee-choosing process played out for us:
Before meeting with our attorney, we had a vague idea about whom we’d name as trustee. Since we were creating our living trust and healthcare directives at the same time as the SNT, we were shuffling lists of our relatives: “this person can be #1 for special needs trustee; that person can be #1 for my power of attorney for health care,” etc.
We ended up choosing one of Nathan’s aunts as the trustee on his special needs trust, with other aunts as the alternates. None of them live in the same town as Nathan, so there’s an issue that may need a workaround when the time comes. As our nephews and nieces mature, some of them may end up on the list as replacements.
Among our trust documents, our attorney included a ten-page letter of instructions for the trustee – in plain English, not legalese! Ten pages sounds like a lot, but it covers several “what-if’s” that may never be a factor. Better to have too much information than not enough. The documents also included a flier from a local wealth management group that has helped many trustees of SNTs in the past.
The attorney and his paralegal emphasized to us that they’ll be available to answer any questions the trustee may have.
As you can see, choosing a trustee is a challenging task. Being a special needs trustee is a challenging task too: those of us who aren’t angels would prefer taking a giant step backward when asked. Hopefully, you’ll be able to find (or hire) a person who is competent, reliable, endowed with common sense and a big heart – and who steps forward when asked.
Special needs trusts: you’ve probably seen the phrase. Maybe you have a vague idea that they involve the inheritance for disabled adult children, and an even fuzzier idea that you should set one up. But dang – they sound complicated, boring, and expensive. Anyway, who has the time or energy to think about the distant future when we’re overwhelmed in the here and now?
Yes, it’s easy to procrastinate, or to talk yourself out of creating a special needs trust. No government agency is going to penalize you for failing to set one up. Nor will a big brute with a heavy object clobber you if you don’t create one.
It took my husband and me five years of saying, “Yeah, we should do that” before we finally set up a special needs trust (SNT). And guess what? The process wasn’t as complex as we’d thought it would be, and the expense was reasonable for what was done. (Boring? Well …).
My goal in writing about special needs trusts is to motivate you to set one up also. You’ll then have the satisfaction of knowing you’ve made the future life of your disabled adult child the best you possibly could.
I’ll try to make the discussion about special needs trusts as clear and non-boring as I can. As part of that commitment, I’ll spread the discussion out over several posts, so your eyes won’t cross from reading one massive discourse about SNTs.
To start, we’ll look at the basics of a special needs trust, followed by my attempts to poke holes in reasons for avoiding setting one up.
SNTs in a Nutshell
Special needs trusts are in the same category as wills, living trusts, estate plans, etc. – they come into play after you, and your spouse (if applicable), have passed away. We don’t like to think about our death, but it’s guaranteed to happen (unless you’re immortal, in which case you’re excused from reading any further).
The idea of special needs trusts came about due to the “wealth” limitations for being covered by SSI and Medicaid: a disabled individual is disqualified from receiving benefits as soon as s/he has assets in excess of $2,000. If the individual’s assets exceed $2,000 after inheriting money directly from parents or other well-meaning relatives, poof! – there go the benefits.
So while you’re still alive and incredibly with it, you create a special needs trust for your disabled son or daughter. As part of doing so, you name a trustee: someone who will monitor and distribute the trust funds to cover your child’s expenses other than food and shelter (which are supposed to be paid for with SSI money). You also create an account that sits in the trust, ready to hold inheritances or other contributions. Because your child will have no control over the money in the trust, the money is not counted as part of his/her assets, so the government benefits are not jeopardized. Ta-daa!
Your special needs trust:
- ensures that your disabled son or daughter can have an inheritance of whatever size available to sustain his/her quality of life, while also continuing to be covered by SSI and Medicaid.
- designates someone you trust to spend funds for the good of your son or daughter, based on your documented wishes.
- avoids probate costs.
- documents the final arrangements you want for when your daughter or son passes away.
- specifies how the funds in the special needs trust will be distributed after your child has passed away.
- can be updated as circumstances change.
Future posts will go into more detail on many of these points. But, if you can’t wait to learn more, other sources have information on SNTs. This link from NOLO is titled “Special Needs Trusts – The Basics.” CNBC has a clear discussion. And here is another discussion from the Special Needs Answers website. Books (remember them?) also have been written about SNTs. And if you attend a conference related to disabilities, check the vendors’ exhibits: chances are an attorney or a special needs financial planner will be among them.
Reasons to avoid creating a special needs trust, and counterarguments
1. Good health. You aren’t planning to die anytime soon: you are healthy, with lots of years between now and Your Deathbed Scene.
I am glad to hear you are healthy. Truly, that is good news. Now I hate to point this out, but Life has a way of throwing curveballs. For instance, all it takes is one car accident – one driver not paying attention – and your son or daughter could be facing life with you gone or incapacitated, like, tomorrow.
2. It costs too much. Money doesn’t grow on trees!
Doing nothing now costs you nothing (now) – this is true. I read somewhere that more than half of families with children with disabilities haven’t prepared a will, let alone a special needs trust. Without a will in place, the inheritance is distributed among your heirs as determined by the legal system. If that means the disabled child ends up with more than $2,000, SSI and Medicaid go away.
Wills by themselves are less expensive to create than trusts. You can download create-your-own-will forms for free, or hire an attorney, who might charge $200 – $600 for the task. However, wills won’t bypass the problem of losing government benefits. Also, probate costs significantly diminish the size of the inheritance. The next generation sure could use that money….
Living trusts and special needs trusts avoid these pitfalls, and have other benefits. But they do cost more for attorneys to prepare. Legal Zoom says attorney fees for creating a trust may range from $1000 -$1500 for an individual and $1200 – $2500 for couples.
Sticker shock? It is possible to prepare a special needs trust on your own, as this link from NOLO points out. I like how it discusses the pros and cons of do-it-yourself vs. hiring an attorney, depending on your circumstances. To prepare your own, you’d need time, persistence, a clear head, and attention to detail, among other attributes. Doing it incorrectly could have big consequences.
Although we did-it-ourselves for a couple of legal procedures in the past, for our special needs trust we opted to hire an attorney. His fees were $2,000. In addition to an SNT, our attorney and his paralegal prepared: updated wills for each of us, a family trust, healthcare powers of attorney, medical directives, and a few other documents. They also supplied instructions for the trustee of the special needs trust, which will be very useful when the time comes. All of this and more, plus their expertise – we felt we got our money’s worth.
And think of it this way: $2,000 translates into maybe 3-4 months of SSI at today’s payout rates. Isn’t it worth spending that much now to preserve years of your child’s SSI payments in the future? And for the individual to have medical coverage?
3. Depend on a sibling. You can leave your child’s share of your inheritance to another son or daughter, who can be trusted to follow your wishes in using that money for the sibling.
This scenario could turn out fine. However, as the CNBC discussion points out, the trustworthy son or daughter at some point may face a lawsuit, bankruptcy, divorce, or unexpected financial troubles – and that set-aside for their sibling could shrink a lot. A trust protects those assets from claims, creditors, and temptation.
4. Your son or daughter isn’t currently covered by SSI or Medicaid. Why set up a special needs trust to protect benefits s/he isn’t getting now?
The key word in that argument is “now.” Do you have confidence that your adult child will earn money consistently enough to be self-supporting for years and years? If they are chronically unemployed or employed part-time, will they have health insurance? After you set up the SNT, it’ll be there if and when your child needs it.
5. The new ABLE accounts will make special needs trusts obsolete. Right?
Not exactly. Here’s an earlier post about ABLE accounts. These accounts allow some disabled individuals who receive government benefits to have assets up to $100,000. However, there is a $14,000 annual limit on contributions to an ABLE account. And that $100,000 overall limit may be a problem for sizable inheritances.
Anyone with more arguments or expertise: feel free to comment!
Meanwhile, here’s the Big Idea: despite some hassle and expense, creating a special needs trust is worth it, to extend your love and care for your special needs child beyond the time your loving, caring heart has thumped for the last time.
UPDATE: I found this lively article on SNT procrastination, written by an attorney, after publishing this post. You’ll see some of the same arguments and counterarguments, plus more!
[Source of the graphic: Slideshare.net – Katherine Zacharias]