Although millions of people each year earn cash refunds from the Internal Revenue Service (IRS) via the Earned Income Tax Credit (EITC), many others, including many people with disabilities, are not taking advantage of this generous program.
In late January 2018, the IRS issued a Notice encouraging tax filers with disabilities to apply for the EITC, noting that the tax credit could put a refund of up to $6,318 into an eligible taxpayer’s pocket. According to the IRS, many eligible people miss out on the EITC because they fall below the income threshold requiring them to file taxes, even though they can still file taxes and possibly get the credit. Others incorrectly believe that receiving the EITC will jeopardize their eligibility for other government benefits.
The EITC is available to individuals making up to $15,010, a figure that rises based on the person’s tax filing status and the number of qualifying children in the person’s household. For a married couple filing jointly with three qualifying children, the maximum household income is $53,930. Married couples filing taxes separately, as opposed to jointly, are not eligible for the EITC.
Taxpayers may claim a child with a disability or a relative with a disability of any age to get the credit if the person meets all other EITC requirements. For many EITC recipients, the credit may not only result in paying no taxes, but in receiving a refund from the IRS. The maximum refund for 2017 is $6,318.
To be eligible for the EITC, people must have “earned income.” Income from Social Security Disability Insurance (SSDI), Supplemental Security Income (SSI) or military disability benefits is not considered “earned income,” although recipients of these programs may still end up benefiting from the EITC if other people in their household are making “earned income.”
On the other hand, income from employer-provided disability benefits is considered “earned income,” until the recipient reaches “minimum retirement age,” meaning the age the person could have begun receiving a pension or annuity from their former employer.
Refunds received via the EITC are not considered income for the purposes of means-tested government benefit programs, such as Medicaid, SSI, Supplemental Nutritional Assistance Program (SNAP) benefits, Section 8 housing, or other programs with maximum income limits.
For an IRS estimate of the size of your potential refund from the EITC, click here.
For people needing assistance in filing their taxes, the IRS has a Volunteer Income Assistance Program, which provides free services for certain people making less than $54,000, including people with disabilities and limited English speakers. For the elderly, the IRS has a similar program, known as the Tax Counseling for the Elderly program.
For more from the IRS about the EITC, click here.
Supplemental Security Income (SSI) is a federal program that helps people with disabilities and very low incomes pay for food and shelter. SSI is often confused with Social Security Disability Insurance (SSDI). One of the main differences between the two programs is that SSDI is available to people with disabilities no matter how much money they earn or have, while SSI places very strict limits on a recipient's income and assets. However, in most states, an SSI beneficiary also qualifies for Medicaid health coverage, which can be an extremely valuable benefit.
Once an SSI applicant has shown that she is disabled, she must also prove that she meets the program’s rules for income and assets. As far as assets are concerned, to be eligible for SSI, an applicant can have no more than $2,000 in assets ($3,000 for a couple), a figure that has not changed since 1989. If the applicant can use or liquidate an asset to pay for food or shelter, the asset will probably count as a "resource" against this limit. A resource would include any funds held in the applicant's bank accounts, retirement accounts, or in cash. The $2,000 resource limit does not disappear once a person qualifies for SSI. If an SSI beneficiary ends a month with more than $2,000 in her name, she will lose her benefits in the following month.
However, not all assets count towards the $2,000 resource limit. The major exclusions are:
The Social Security Administration currently lists 44 resource exclusions in all. Your special needs planner can advise you on which assets you own may be excluded from counting towards the $2,000 limit. The planner can also discuss with you setting up a special needs trust to protect an SSI beneficiary's assets while allowing her to maintain SSI eligibility. To learn more, contact us today.
Trustees of special needs trusts are increasingly relying on “administrator-managed prepaid debit cards,” such as True Link cards, when disbursing funds to beneficiaries. These cards offer trust beneficiaries greater independence and the ability to get what they need more quickly. But such cards existed in a regulatory gray area as far as the Social Security Administration (SSA) was concerned. That is no longer the case.
Special needs trusts are created to protect the assets of people with disabilities. When properly maintained, special needs trusts preserve the individual’s eligibility for public benefit programs, such as Supplemental Security Income and Medicaid.
However, special needs trusts must abide by strict rules, overseen by the SSA, concerning what trust assets can be used for. For example, special needs trust funds can almost never be used for food and shelter expenses, medical expenses that would otherwise be covered by Medicaid, and items that can be traded for cash.
To ensure that trust distributions comply with these rules, trustees are increasingly relying on administrator-managed prepaid debit cards, the most commonly used being a reloadable Visa card known as the True Link card. These cards allow trustees to maintain oversight of card transactions while providing people with disabilities -- the cardholders -- the ability to make purchases quickly and independently.
Since the cards can be managed online, trustees are able to link the trust funds to checking and similar accounts and quickly transfer funds to beneficiaries for their use. Along with ongoing monitoring and the ability to print off regular reports, the cards allow trustees to block purchases that my run afoul of SSA’s rules, and thus jeopardize the beneficiary’s continued eligibility for public benefits. Each True Link card, for example, can be customized to block transactions that might negatively affect benefits, such as purchases at grocery stores, restaurants, and bars. Administrators can also set up the card to work only at specific, authorized merchants -- and nowhere else.
On May 14, the SSA published a new section regarding True Link and similar type cards in its Program Operations Manual System (POMS), the SSA’s internal guidance system that is used by field workers who handle benefits eligibility questions. This marks the first time the SSA has recognized these cards as a legitimate way for trustees to manage funds in a special needs trust.
Among the rules set forth in the POMS, the SSA specifies that to protect the beneficiary and the trust from making inappropriate disbursements, the trust must be the account owner and administrator. If the card is used to withdraw cash, such as from an ATM, then the funds will be counted as cash income and thus can affect the person’s eligibility for public benefit programs, If the beneficiary uses the card to pay for food or shelter, the disbursements will likely reduce SSI payments.
To learn more about how an administrator-managed debit card can be used in conjunction with a special needs trust, contact us.
In passing the Achieving a Better Life Experience (ABLE) Act in 2014, Congress created a new way for potentially millions of people with special needs to save for disability related expenses without jeopardizing their eligibility for federal public benefit programs.
In fact, these savings plans, popularly known as ABLE accounts, may be used for an even broader array of products and services than many beneficiaries may realize – including housing expenses, bus fare, financial management services or even, potentially, a smart phone.
The ABLE Act itself defines “qualified disability expenses” as “expenses related to the eligible individual’s blindness or disability which are made for the benefit of an eligible individual who is the designated beneficiary.” It then goes on to list a range of categories of potential uses for funds set aside in ABLE accounts, including:
“Education, housing, transportation, employment training and support, assistive technology and personal support services, health, prevention and wellness, financial management and administrative services, legal fees, expenses for oversight and monitoring, funeral and burial expenses, and other expenses, which are approved by the Secretary under regulations and consistent with the purposes of this section.”
In subsequent proposed regulations released in June 2015, the Treasury Department and Internal Revenue Service (IRS) reiterated that the term “qualifying disability expenses” should be “broadly construed” to include any benefit related to the designated beneficiary “in maintaining or improving his or her health, independence, or quality of life.”
This means that there is no requirement that the benefit be medically necessary, such as is the case when determining health care services covered by Medicaid, or that it benefit no one but the designated individual. As an example, the regulations specify that a smart phone could qualify as a covered expenses, provided that it serves as “effective and safe communication or navigation aid for a child with autism.”
Originally, the proposed regulations would have also required states to establish safeguards for ensuring that ABLE funds are only used for qualifying expenses, presumably by requiring beneficiaries to obtain pre-approval before distributing funds. In response to a backlash from disability advocates, many who feared that such requirements would be unduly burdensome, the Treasury Department and IRS rescinded this requirement in a notice issued November 2015 So as things stand now, you don’t need to get approval to withdraw funds and pay for a qualified disability expense.
The Obama administration, however, never issued final regulations, although the IRS has stated that “[u]ntil the issuance of final regulations, taxpayers and qualified ABLE programs may rely on these proposed regulations.”
To protect against future inquiries from the IRS, the ABLE National Resource Center recommends that beneficiaries maintain detailed records of expenses paid for by ABLE account assets, as well as how these expenses relate to their disabilities in case the expenditures are ever questioned by the IRS. Misuse of ABLE account funds could result in tax penalties and possible loss of public benefits.
Click here to watch a video and read a fact sheet about qualifying disability expenses from the ABLE National Resource Center.
For help in setting up an ABLE account or to find out whether something you want to use the account for is a qualified disability expense, please contact us.
Choosing the right person to serve as trustee of a special needs trust is one of the most important and difficult issues in creating the trust. A trustee typically manages the day-to-day operations of the trust, often making distributions to the trust's beneficiary, investing the trust's assets, and paying the trust's bills – all while maintaining the beneficiary’s eligibility for public benefits programs.
The law isn't very strict about who may serve as trustee, as long as the person is over 18 years of age and is capable of managing his or her own affairs. A trustee can be the child’s parent or other relative, a trusted friend, or a professional such as a lawyer, accountant, trust company, bank or private professional fiduciary. Here are five considerations to help in the choice of who should serve.
Familiarity with public benefit programs. To ensure that your beneficiary's eligibility is never compromised, a trustee's knowledge of public benefit programs is crucial. Many government benefits like Medicaid, Supplemental Security Income (SSI) and Section 8 housing have very complicated and contradictory rules governing special needs trusts. The trustee of a special needs trust must know these rules well, or, at the very least, work closely with a special needs planner who can explain the ramifications of his actions as trustee.
Does the trustee have time to do the job? Serving as the trustee of an active special needs trust can seem like a full-time job. Depending on a beneficiary's needs, the trustee could spend a good deal of time paying bills, monitoring government benefits, helping to secure housing, paying for medical care and serving as a link between the beneficiary and a variety of service providers. If a trustee finds that she can't perform all of these tasks when needed, or if she is sacrificing her family life or other professional obligations in order to work as a trustee, then it may be time to look for a professional trustee.
Consider a professional trustee. This could be an attorney, accountant, trust company, investment firm, bank or private professional fiduciary. A professional allows you to take advantage of that individual’s or institution's experience with public benefits, investments, money management and tax planning. Another advantage is emotional distance. Sometimes, the strains of a beneficiary's demands for trust distributions can cause significant problems for family members. These intra-family complications can be avoided through the use of a professional trustee.
How comfortable are you giving trust control to an outsider? For those who are uncomfortable with the idea of an outsider managing a loved one's trust, it is possible to appoint a family member and an independent trustee as co-trustees. By doing so, you can rest assured that there is a person who is familiar with the beneficiary and has her best interests at heart and that the public benefit programs' requirements are being met. Another option is to simultaneously appoint a trust "protector," who has the powers to review accounts and to hire and fire trustees, and a trust "advisor," who instructs the trustee on the beneficiary's needs.
Is a pooled trust an option? A pooled trust, which is administered by a non-profit corporation, may be a good option for some families. Such trusts pool the resources of many beneficiaries, and those resources are managed by a non-profit association. Pooling trust resources can reduce administrative fees, increase the total funds available for investment, and permit access to better investment opportunities. Because a pooled trust accepts contributions from many beneficiaries, the trust is able to make more stable investments and provide additional management services that a conventional special needs trust might not be able to afford. If the trust is modest in size, it may benefit from the low costs of a pooled trust. Others appreciate the fact that their funds will be used to help others with special needs.
Make sure that whomever you choose as trustee is financially savvy, well-organized, and, most important, ethical. We can help you make the best choice - contact us.
Most special needs trusts give their trustee wide authority, often appropriately so, to respond to unforeseen circumstances. But for those concerned about placing some checks and balances on the trustee’s authority, one possible option is a care committee.
Special needs trusts are trusts designed to protect the assets of a person with disabilities. The trustee is the person tasked with managing and distributing the trust’s assets on the beneficiaries’ behalf.
As previously discussed here, in addition to the trustee, many trusts create a separate care committee, either explicitly in the trust or through a separate memorandum of intent. Care committees, also commonly known as “trust advisory committees,” are typically granted the right to review accountings, to examine records, and to remove and replace the trustee. To use an analogy from the corporate world, the trustee is the CEO and the care committee is the board of directors. The care committee may also be given the authority to amend the trust, veto certain distributions or participate in other decisions.
A downside to the creation of a care committee is that it can slow down the decision making process, at the expense of the beneficiary. Likewise, a care committee can deny the trustee the appropriate flexibility to act in the person with disability’s best interests.
To see if a care committee is right for your special needs trust, contact us.