Will There Be A Need for Speical Needs? Special Needs Trusts, Budget Deficit and Declining Government Services

Losing Valuable Government Benefits. For families and parents with children with mental or physical conditions which limit the ability of children or loved ones to earn a living, their greatest fear is what happens to their child when the parent dies and is no longer able to care for the special needs child. Often such children receive important government benefits for medicine, care or housing. If the parents leave an inheritance outright or in trust, the existence of such funds may cause the special needs child to lose their government benefits. Parents look to Special Needs Trusts to solve this problem.

Government Program Requirements. Each county, state or federal governmental program can have different eligibility requirements for governmental programs for disabled persons. For social security disability where the person has contributed a long time into the social security system, at the present time, there may be no limits on the assets or income a person may have to qualify for benefits. In contrast, for Medicaid, which has a combination of federal and state eligibility requirements, the single person usually may not have more than $2,000 of countable assets (called “resources”) and nearly all of their income they have will first have to go to pay for the costs of their care. If a person has more than $2,000 in resources, the Medicaid program may require that person to exhaust all of their money for their care in a nursing home until they only have $2,000 left. Or worse, if there were any gifts during the five years prior to applying for Medicaid, they may be disqualified from Medicaid for a time period equal to what the gifts would have paid for their care. Each state and federal program can have complex eligibility rules which rival the US tax code in complexity and difficulty to understand.

Special Needs Trusts. The concept of the Special Needs Trust is to have a trust which can supply limited needs of the special child without losing their governmental benefits. The traditional “Special Needs” often only provides for limited items such as vacation travel which the government would not pay for and often prohibit use of the funds in the trust for the food and housing of the special child. In contrast to this focus on government welfare benefits, a properly drafted Special Needs Trust can be a very flexible document that can give the trustee the ability to pay for almost any need the beneficiary might have. The specific rules vary from state to state. Parents want to help their special child and still have the child qualify for a government program and these may be conflicting goals for many programs.

Preventing Abuse. I recently participated in an eye opening presentation by Stephen W. Dale, a California attorney who specializes in working with families with children who have disabilities and who will require support from others for their entire lives. Stephen Dale was a psychiatric nurse for seventeen years and personally treated persons with psychiatric problems in institutions and elsewhere before becoming a lawyer. Many consider Dale a national expert. His passion is to serve as an advocate in the prevention of abuse and mistreatment of persons with mental health problems.

Growing Needs. Dale points to the increase in needs for services and the decrease in the funding available for those needs. In 2006, there were nearly 225,000 cases of US children with autism ages 6-22. In 2006, there were an estimated 25 million adults aged older in the US with serious psychological distress. About 4.4% of US adults may have some form of bipolar disorder. In 2006, about 9.2% of the US population 12 or older had substance abuse problems.

Declining Funding. State and county budgets are pressed. When I was in the Virginia legislature, there was never enough funding to meet the needs of persons with mental health issues. According to Dale, California counties have nearly eliminated their mental health programs and the state is dismantling its social service systems. Other states are or will follow the lead of California.

Federal Budget Deficits. This year, there was a time when social security payments were less than the program’s income. Entitlement spending (social security, Medicaid and Medicare) will consume the entire federal budget by 2052, with no money available for defense, highways or parks. In 2010, the Heritage Foundation estimates that Medicare, Medicaid and all other health costs will consume 17.2% of the US economy, up from 4.7% 50 years ago. The total national debt is $12.4 trillion, but the unfunded obligations for social security and Medicare are $45.6 trillion, almost four times the national debt. In short, due to budget problems, the federal government will have to eliminate eligibility for government assistance for any person with a disability where that disabled person has any kind of Special Needs or other trust or money set aside for their benefit.

The Grim Future. Our Prediction: A Special Needs Trust that qualifies a child today for continuing government benefits will not qualify for government benefits in the future. This is but one of the fundamental flaws in conventional planning for special needs children. A properly drafted and administered Special Needs Trust in reality is a private social system that should serve as the parent’s alter ego to provide quality of life and life long advocacy. In our next blog, we will provide the solutions that are working.