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Special Needs Trusts: What they are and how they can impact your Texas divorce

Special needs trusts are designed to hold onto assets of a person who is receiving governmental benefits like Supplemental Security Income (SSI) and Medicaid. Whatever assets are held in the trust would be available to augment and add to the level of care that a disabled needs. The main force of the special needs trust is that the person would still be eligible to receive the government benefits that they need due to those assets being held inside of the trust, rather than at their ready disposal or usage. 

There are two varieties of special needs trusts. For example, you could create a special needs trust for a child of yours who has a special need or a disability. That special needs trusts may be created by you, your spouse or by both of you under estate planning provisions. The other type of special needs trust is one where the trust is created out of the special needs' person's assets or money. These trusts will reimburse Medicaid for any funds spent on the special needs’ person’s behalf. 

What impact will a special needs trust have on your divorce

If your child or you are receiving benefits from Social Security or Medicaid, those agencies provide only limited guidance for you and your spouse in a divorce setting. Special needs trusts can play an important role in the negotiation and settlement process in divorces because they allow for you and your spouse to plan on how finances will be handled immediately after a divorce. This is critically important when one of the parties or your children have a special need and rely in part on government assistance to receive medical care, pay bills or both. Spousal maintenance, child support, and other court-ordered payments can be held in these trusts.

Think about this example to better illustrate my point. Suppose that you have a fifteen-year-old son who receives $500 per month in SSI benefits as well as Medicaid. Within your final decree of divorce, your ex-spouse is ordered to pay you $750 per month in child support which is paid directly to you.

Under the rules of Social Security, 1/3 of the child support that you receive is excluded from income limits that go towards determining eligibility, only $500 goes toward the government's calculation of income and assets to determine whether or not your child is eligible to receive SSI benefits and Medicaid. Even still, the $500 of support that counts towards the calculation will wipe out the $500 of potential benefits ($500-$500 = $0). That means no SSI benefit every month and no Medicaid to help pay for necessary medical treatment. You may have been planning the entire divorce to live in part on the child support and SSI payments. Now you are in a position where you have only one of those sums to count on for survival.

Here is how you can structure your final decree of divorce to protect yourself and your child in the future. The final decree of divorce should require your ex-spouse to pay the child support directly to your child’s special needs trust. That will allow you to slip by the government’s income/assets test and receive both SSI and child support. This benefits you and your child and does not harm your ex-spouse in any way. It is a win-win all the way around. 

Yes, there are costs associated with creating a special needs trust. You may even have to hire an estate planning attorney to at least give guidance on the subject if not create the whole thing for you and your family. However, the short-term investment than hiring an attorney and creating the trust entails will be quickly canceled out by the increase in benefits and child support that you are fully able to take advantage of. Medicaid eligibility is a huge part of the equation, one that you may not be able to accurately project how much money you will save throughout your special needs child's life.

The bottom line is that you can have your child support payments ordered to be put into a Special Needs Trust. The cash payments by your ex-spouse which instead be converted into distributions by the Trust whenever they are needed. 

Take care of these issues before your divorce is over with

Another important point that I want to stress to all of you today is that you should do whatever it takes to have the issues settled before your divorce concludes. If you do not, you run the risk of having the SSI payments reduced by the child support (as we saw above) or lost completely due to your receiving child support payments. 

Whenever a child support figure is set, whether by agreement or order from a judge, I would recommend that the attorneys in your case agree to hire an attorney who has experience creating special needs trusts. There are details that this attorney must be able to sort out and it is not common to find a family law attorney who is also a competent builder of a special needs trust.

As far as your final decree of divorce is concerned, it should order that your ex-spouse make a payment for your child’s special needs to the Trustee of the Special Needs Trust each month. The resources and programs that are available to you and your child should be considered when negotiating child support. A judge will do so, and it makes sense for you to consider that when making a settlement offer for child support. Also, you need to think ahead to the future to determine if your child will need either more or less care and therefore monetary support as he or she ages.

I know of some people who would tie the amount of child support paid to the amount of SSI benefits that are paid. They would take the amount of SSI benefits and subtract that amount from the amount of child support that would otherwise be agreed to. That reduced amount would be the child support figure that is agreed to. Here is why I think that is a bad idea and why I would advise a client against doing so.

If your daughter is disabled and your divorce decree states that there will be an offset of the child support obligation for each dollar received in SSI benefits, this does not take into consideration that your child's needs may increase. You can try to go back to court in the future to have the child support orders modified based on a substantial change in the circumstances of your case and probably win on that basis. The increase would need to be reported to the Social Security Administration. This will cause a substantial decrease in the amount of SSI that your child can receive.

There is a chain reaction that follows this decrease in SSI benefits due to your divorce decree tying the amount of child support that your ex-spouse has to pay to the amount of SSI benefits that your child receives from the government. The lesser amount of SSI increases the child support obligation, so on and so forth. What you have done is set yourself up for a roller coaster ride of increases and decreases in the number of benefits you receive and child support that your ex-husband has been ordered to pay you. This will go on and on until the SSI benefits completely go away.

As far as I can tell, you should just agree to a specific dollar value for child support. Do not tie child support to the SSI benefits that are also received. Do not have the child support payments go to you directly, but rather into a special needs trust. Your case will not look exactly like any of these examples that I have provided you with today. With that said, I think these examples can paint a clearer picture of the circumstances that you need to be aware of. Along with your attorney, look into your options and you can plan a course for your case that benefits you and your child.

How will a judge determine that your child is disabled?

The definition of "disabled" changes depending on who or what group you are asking. The DMV may find your grandmother to be disabled just based on a note sent by her doctor. The military may declare you to be disabled when you are not able to pass several mental or physical tests. Social Security makes disability determinations based on the ability to work and earn a sufficient income for yourself to live on.

Your family court judge has their criteria to look to when determining whether or not your child suffers from a disability. Whether your child requires substantial care and personal supervision because of mental or physical impairment is an important part of the judge's analysis. Those impairments must also render your child unable to care for himself or to provide a basic level of self-support. These impairments must be in place before your child's 18thbirthday, as well. 

If you are trying to establish in your divorce that your child is disabled, you are likely trying to do the same through Social Security to establish SSI benefits for him or her. The impairment must be expected to last for at least 12 months or result in the death of your child to be approved for SSI. AS I mentioned earlier, it is a job-based analysis that Social Security will undertake. If your child is not expected to be able to work on a full time, sustained basis.

It is likely that if your child has already been approved for SSI benefits, he or she would also meet the first part of the disabled test for Texas family courts. That is, your child would be unable to support him or herself absent monetary support from one of their parents (or both). Requiring constant supervision and care is not necessarily a part of the SSI analysis, but it would follow that requiring constant and around the clock, care would mean that your child is also unable to perform substantial gainful activities in the workplace.  

If your child has not yet been examined by Social Security for benefits, then your child's doctor's will need to act as witnesses in a trial or hearing to help establish their disability. Often teachers will work closely with special needs children and are therefore great at testifying as to their limitations currently and their prognosis in the future. These folks have direct experiences with your child and are oftentimes stronger witnesses than medical experts who know nothing of your child beyond the medical records provided to them.

You may want to consider videotaping your child throughout a day just to give the judge an idea of what a typical day looks like for your child. What special needs does your child have? Do you have to go to great lengths to feed, bathe or care for your child? This can be especially powerful evidence if your ex-spouse testifies that your child's condition is not that severe and that child support after adulthood is reached would not be necessary.

More on child support for disabled children in tomorrow’s blog post

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