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Jan 1992

Planning for the physically and developmentally impaired. (Personal Financial Planning)

by Secemski, Kenneth G.

    Abstract- Current laws have many provisions for the lifetime care requirements for the physically and developmentally impaired. Some of the opportunities available to handicapped dependents include Social Security benefits, Supplemental Security Income, medical assistance programs, free legal assistance and food stamps, morally obligated gifts, trust funds, and discretionary trusts. Planners and parents of the impaired need to explore various planning techniques to come up with the best personal financial plan for the physically or developmentally handicapped.

Parents of children with developmental disabilities, which by federal statute are defined as mental or physical disabilities that originated before the individual attained the age of 22, should be aware of opportunities available for these dependents. Most developmentally disabled children are or will be eligible to receive federal and state benefits. Under

































current laws, a disabled individual could qualify for Social Security, Supplemental Security Income, medical assistance, legal assistance, and food stamps.

Social Security

An individual who is the child of a person covered under Social Security will also be eligible for Social Security benefits if the disability began before the age of 22. In addition, the child must be unmarried or married to another disabled child, and must be dependent upon the parent for support. The benefits will be calculated based upon the parent's earnings record.

However, if the child is employed, the Social Security payments will be subject to an earnings test and may be reduced by the child's earnings. Note that the child's benefits will not be reduced by his assets (i.e., inheritance, gifts, or investment earnings).

Supplemental Security Income

Supplemental Security Income (SSI) is another Social Security program that ensures a basic level of cash income for the disabled. However, unlike Social Security, this program, like that of Medicaid, is structured based upon a person's financial needs. SSI is available to those who meet a financial eligibility test, known as an "income and resource" test. When income and resources meet a certain level, benefits cease.

SSI describes income as "the receipt by an individual of any property or service that he can apply, whether directly or by sale or conversion, to meeting his basic need for food, clothing and shelter." As a rule of thumb, eligibility for SSI involves having income and resources of no more than $2,000 for individuals and $3,000 for couples. Note that SSI can range from approximately $400 for individuals to $600 for couples per month. Some states pay additional amounts, which are included in the federal check.

Medical Assistance Programs

Medical assistance programs, commonly known as Medicaid, are programs of federal financial assistance to states for payment of medical cost for medically needy persons. Eligibility is determined by the state according to federal regulations.

Free Legal Assistance and Food


Disabled individuals may also qualify for free legal assistance and food stamps. Eligibility depends upon an income and asset test usually prescribed according to criteria established on a state by state basis.

After reviewing the available resources of government programs, consider any other options.


The approach of leaving no money directly to the child has both advantages and disadvantages. The parents' assets can be left to other children, whereas if left directly to the disabled child the funds may dissipate. In addition, if government programs are eliminated by changes in laws, or benefits reduced or discontinued after the parents' deaths, the disabled child may be in need of the resources the parents could have left. It is extremely difficult, emotionally, for most parents to disinherit a child.

Nevertheless, if the parents' estate is small, disinheritance is a possibility that should be seriously considered.

Morally Obligated Gifts

This type of gift or bequest is accompanied by a request that the recipient, (i.e., brother, sister, cousin or friend) use the gift for the benefit of the disabled child. The major disadvantage with this type of gift is that the recipient becomes the owner of the property. Any income taxes due from the income of the assets will be the liability of the recipient. In addition, the asset will be subject to the recipient's creditors. Further, morally obligated gifts do not impose a legal obligation. If the recipient dies before the disabled individual, the remaining assets will pass on to others by whatever manner the estate is distributed, with a risk that the moral obligation will be lost in the process.

Trust Funds

A typical trust fund may require the trustee to expend income and perhaps principal for the education and health needs of the beneficiary. These trusts may be referred to as mandatory trusts. The trustee is granted no discretion in distribution of the funds. Trusts that require income distributions might cause a disabled individual to be ineligible for SSI or Medicaid. If the trust proves inadequate to meet the minimum requirements of the beneficiary, assistance from the state or federal government would still be forthcoming. The trust however, may end up aiding the state or federal government, rather than the disabled child.

Discretionary Trust

The trust must be discretionary if it is to most effectively serve the disabled child. A discretionary trust should specifically grant the trustee the power to accumulate surplus income. Potential benefits from discretionary trusts should not disqualify the disabled child from benefits based upon an income and asset test. In addition, the trust instrument should contain a spendthrift clause to ensure that the beneficiary may not pledge or use the assets of the trust. This should preclude creditors from acquiring the trust fund. The trust should supplement rather than supplant public assistance. There should not be a state surcharge for a properly drawn discretionary trust. However, surcharges will depend upon applicable state laws.

Many Opportunities for Planning

Meeting the lifetime care requirements for individuals with physical and developmental disabilities offers many planning alternatives. Focusing on these children is the first step to securing a more comforting life for all family members involved.

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