In this episode, Jill welcomes Kristen Lewis, a nationally recognized special needs estate planning attorney, to unpack the critical legal and financial steps families should take to secure the future of a loved one with special needs. They explore common misconceptions, how traditional estate planning often fails these families, and why comprehensive special needs planning requires much more than just drafting a trust.
This is Part 1 of a two-part conversation, diving deep into government benefits, asset limits, trust types, and common pitfalls. Whether you’re a parent, grandparent, or caregiver, this episode is packed with essential guidance to help you plan with confidence.
Topics Discussed
Government Benefits
Essential Trust Types Explained
Common Mistakes & Misconceptions
Articles & References
Questions about special needs estate planning?
Email Jill at Jill@deathreadiness.com
If she notices a lot of the same questions, she and Kristen will record a follow-up episode to answer these popular questions.
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Programming Note: The Death Readiness Podcast is moving to an every-other-Friday release schedule to bring you thoughtful, high-quality content in a sustainable way.
Kristen Lewis: (00:00)
In my experience, the vast majority of what I'll call, traditional estate planning attorneys, and many financial professionals for that matter, have no clue about how special needs estate planning differs from traditional estate planning. In fact, 30% of my practice involves fixing the mistakes of traditional estate planning attorneys who don't know how special needs estate planning differs from traditional estate planning.
Jill Mastroianni: (00:33)
Welcome to The Death Readiness Podcast. I'm Jill Mastroianni, an attorney with more than a decade of practical experience in trusts and estates, here to demystify the complexities of planning for the inevitable. This podcast is your guide to navigating estate planning and end of life preparation with clarity, compassion, and empowerment. Let’s spark the conversation, shift perspectives, and explore how to embrace death readiness together, courageously and thoughtfully.
Welcome back to The Death Readiness Podcast. I’m your host, Jill Mastroianni.
In our last episode, I spoke with my dad about raising my brother, Dan, who has Down syndrome, and the journey of ensuring he had every opportunity to thrive — from navigating obstacles to becoming Dan’s strongest advocate.
If you missed that conversation, I recommend checking it out. To date, that episode featuring both my dad, and my brother is The Death Readiness Podcast’s most popular episode.
Today, we’re building on that conversation by exploring the legal and financial planning that goes into securing the future of a loved one with special needs.
(01:52) To help us understand this type of planning, I’m so grateful that Kristen Lewis is joining us today.
Kristen is a special needs estate planning attorney based in Atlanta, Georgia. A couple of years ago, I had the privilege of working alongside Kristen as her Tennessee co-counsel on a special needs estate planning matter, and I can tell you firsthand — she’s not only incredibly knowledgeable, but also deeply compassionate in her work with her families.
This kind of planning is complex. You’re likely going to hear some new terms and concepts in this episode. If something doesn’t make sense right away, don’t stress. It might take hearing this material more than once for it to really start to sink in.
If you have general questions after listening, I would love to hear them. If I see a lot of the same questions coming up, Kristen and I will do a follow-up episode to help clarify those topics. You can find my email in the show notes, and I’ll share it here too: It’s Jill, J-I-L-L, at Oversimplyllc.com O-V-E-R-S-I-M-P-L-Y-L-L-C.com. But again, that will be in the show notes as well.
(03:22) As always, my goal is to empower you. Estate planning can feel intimidating, especially with all the legal jargon, but you’re not alone. There is no such thing as a bad question. Don’t apologize for what you don’t know or don’t understand. By being here today and listening, you’re already taking a really admirable step to figuring this out. The more we learn, the better we can plan for the people we love.
And, I want to make one quick note: I’m adjusting the podcast schedule to release new episodes every other Friday, so I can continue bringing you thoughtful content in a more sustainable way. And, since Kristen and I covered so much ground, my conversation with her will be split into two parts — starting with today’s episode.
Jill: (04:16)
Hi, Kristen. It is so great to have you on the podcast today. Thanks for joining us.
Kristen: (04:22)
Well, I am thrilled to be joining you and thanks so much for asking me to be a presenter.
Jill: (04:27)
Well, you and I worked together briefly when I was practicing in Tennessee. You were assisting a family who had children who had special needs, and I was very, very impressed. So, when thinking about who could help to educate us on the topic of special needs estate planning, you were the first person that I thought of. So, I appreciate you joining us.
I would like to start out just getting an understanding of your background and how you got into this field of special needs estate planning.
Kristen: (05:06)
When I was a baby lawyer at King & Spalding here in Atlanta, I was part of the estate planning department. And I'd only been there for a couple of years when the partner who was my mentor called me into his office and said that our good client, Mrs. Jones, let's call her, who had been a traditional estate planning client for many years, had just called to let him know that she'd had a new baby and the obstetrician had botched the delivery and the baby was born with cerebral palsy and a whole host of other disabilities. And Mrs. Jones ended up suing the obstetrician and they recovered a nice settlement.
And Mrs. Jones says she needs something called a special needs trust. Go find out what the heck that is and draft one. And that was in 1988 before special needs estate planning was even really a thing or recognized as a subspecialty of traditional estate planning.
Jill: (06:25)
And were you already doing estate planning?
Kristen: (06:28)
So, I was trained as a traditional estate planning attorney for my first two years at King & Spalding in Atlanta. And over the years, my special needs estate planning represented a very small fraction of my estate planning practice. But over the years, people who have children and other loved ones with disabilities, they talk to each other about who knows what they're doing in these very specialized areas.
And so, over the last 40 years of my practice, I'd say maybe 80% of my families have a special needs issue buried in there somewhere. And 20% of the families we serve are just regular traditional estate planning matters.
Jill: (07:23)
Okay. And I think for a lot of us, it might be confusing to hear the term special needs estate planning. And why isn't it just estate planning? Why can't all attorneys do it? What's different about it?
Kristen: (07:37)
That is a great question. And in my experience, the vast majority of what I'll call traditional estate planning attorneys and many financial professionals for that matter have no clue about how special needs estate planning differs from traditional estate planning.
In fact, 30% of my practice involves fixing the mistakes of traditional estate planning attorneys who don't know how special needs estate planning differs from traditional estate planning.
Jill: (08:13)
Could you give us an example of what a mistake might be?
Kristen: (08:17)
So, the classic rookie error for somebody that doesn't know how to do special needs estate planning is setting up a trust for the beneficiary with the disability that has the dreaded support and maintenance distribution standards applicable to distributions for the person with the disability.
And many of us were trained in law school and every year when we do our continuing legal education classes, the classic “health education, maintenance and support distribution standard” is a safe harbor and doesn't get you into any transfer tax quandaries or problems. And that is a true statement unless your beneficiary has a disability and they are trying to maintain or to establish eligibility for means tested government benefits, for which they are eligible as a consequence of their disability.
Jill: (09:26)
So, I just want to pop in for a second. When we talk about the support and maintenance standard or the health education maintenance and support, sort of the lawyer lingo is HEMS standard, we're talking about the discretion that a trustee has to make distributions to a beneficiary for that beneficiary's health, education, maintenance, and support. And how that type of discretion in the trustee could cause a beneficiary who has special needs to be considered as having these resources that are in the trust available for purposes of determining whether they are financially eligible for certain types of government benefits. Is that right?
Kristen: (10:16)
That is absolutely true. I would say the next biggest, it's not necessarily a mistake, it's almost an omission by traditional estate planning attorneys who think that all the family needs when they have a child or other loved one with a disability is a special needs trust. And so that attorney may prepare a special needs trust for the family.
But the fact is, doing a proper special needs trust is only about 5% of what constitutes comprehensive special needs estate planning. And these traditional estate planning attorneys know nothing about the other 95% of what goes into a comprehensive special needs estate plan.
And so, they think their clients are protected and the clients think they are protected, not knowing that 95% of what needs to go into this special needs estate plan has not even been addressed.
Jill: (11:25)
Okay, and I think that's a really important point because even if you have an estate planning attorney who, let's say, is able to draft an adequate special needs trust, and we're going to talk about how the words special needs trust, it can mean a lot of different things, right? So even if someone can draft that, there are still lots of other things to take into consideration when planning for a child or a family member who has special needs. And we're going to touch on that a bit later in the episode.
Let's walk through, if you don't mind, what might constitute special needs estate planning. And then while we're talking about that, weave in what sort of misconceptions might be out there about what special needs estate planning is or should be.
Kristen: (12:20)
Special needs estate planning, the primary goal of this very specialized type of estate planning is to maximize the sources of available funding for the loved one with the disability. And that includes not only the private resources of the family doing the plan, but also various government benefits and programs.
Our goal is to make sure that no aspect of the special needs estate plan disqualifies the beneficiary with the disability from these government benefits. The documents that we prepare for a family as part of special needs estate planning include wills, revocable trusts, quite a number of irrevocable trusts, which we'll be talking about.
Jill: (13:12)
I want to take a quick pause from the conversation here to explain a few key terms to make sure we’re all on the same page as we continue this conversation.
Those terms are Will, revocable trust, and irrevocable trust.
The formal name for a Will is a Last Will and Testament. It’s a legal document in which an individual specifies how assets included in the individual’s probate estate should be distributed after the individual’s death.
A testamentary trust is a trust that is created under a person's Will and only takes effect upon that person’s death, or, as Kristen likes to put it, when the person’s Will “matures.”
If I’m writing my Will, I might say:
“I give $50,000 to the trustee of the Joe Smith Special Needs Trust to be held, administered and distributed as provided in Article 4, titled, Joe Smith Special Needs Trust.”
The terms of the Joe Smith Special Needs Trust would be detailed in Article 4 of my Will. It’s called a testamentary trust, testamentary meaning that it’s created under a Will.
A revocable trust, or “living” trust is a legal arrangement in which an individual transfers their assets into a trust while they’re still alive and retains control of those assets during their lifetime. The individual who created and funded the revocable trust can modify or revoke it at any time. You see the word “revoke” in “revocable.”
A revocable trust becomes irrevocable upon the death of the individual who created and funded it.
An irrevocable trust is a trust that cannot be changed, modified, or revoked after it has been created, except under create limited circumstances.
Within both the revocable trust agreement and the irrevocable trust agreement, you can create additional trusts, just like you can within the Will.
That’s all I’m going to cover for now — I just wanted to lay a foundation, so we have a shared basic understanding of these key terms as we move forward.
Kristen: (16:04)
The two main cornerstones of a comprehensive special needs estate plan include what I call the network of special needs trusts. Not a special needs trust, but a network of special needs trusts, each of which is designed to be funded with different kinds of assets at different times, and by different people, many times.
So, the network of special needs trusts is the foundation of a comprehensive special needs estate plan. And the second cornerstone is what I call the team of allied professionals that help design and implement the special needs estate plan because special needs estate plan is not self-implementing. And we'll talk about some of the team members that help get it done.
But thank you for asking about the most common misconceptions about special needs estate planning. I have quite a list to share with you and we're gonna talk about some of them in much more detail. But one of the biggest misconceptions is families of means in particular, believe that accessing government programs and services for their loved one with the disability will be no problem because they have lots of money to get their child.
Jill: (17:38)
This is what I was about to interject and ask you. Okay, what if we have somebody listening and they are well off and believe that they don't, and actually maybe even morally they should not, be accessing government benefits because they believe they can pay for everything on their own. How is that kind of thinking problematic?
Kristen: (18:02)
Well, until it happens for the first time, that a wealthy family is denied access to a beneficial program or service that they really, really want for their loved one with a disability, they literally cannot conceive of something that is not available on a private pay basis. And, you know, they're used to having their private wealth and resources afford them access to whatever they want for their family.
And then they get into the government benefits world. And it's one of many reasons that the government benefits programs are so underfunded and sort of broken, actually, because there are millions of families who are willing and able to pay for some of these services. And the government programs are just not set up to accommodate private pay clients.
Jill: (19:01)
So, when you say, “private pay”, you mean if I am a parent, I have a child who has special needs and I want them to access this specific government program; I can't in some instances just say, “I'm going to pay you directly. My child is not eligible for government benefits, but I'm going to pay you directly however much you want for this service.” I can't get it, right?
Kristen: (19:25)
Well, and the person on the other end of the conversation would say, “we'd be happy to take your money, lady, but if your child is not eligible for Supplemental Security Income and Medicaid, we literally cannot accept your child into the program.”
Jill: (19:42)
Okay, so that is a good point to ask you to give us a little bit of an overview before we get into hearing lots of terms that might be confusing for us. What are the different types of means tested and employment-based government benefits and how do they differ?
(20:01) I’m jumping in quickly to define a key term we haven’t used yet — ‘means-tested’. This term refers to certain government benefits that are only available to people whose income and assets fall below a specific threshold. In other words, if you have too much income or assets worth more than a certain amount, you might not qualify.
Now, back to my conversation with Kristen.
Kristen: (20:31)
Okay, so the vast majority of our families who have a loved one with a disability, that person accesses the government programs and services first by establishing eligibility for Supplemental Security Income, SSI.
Jill: (20:51)
As a general matter, SSI provides monthly payments to people with disabilities who have little or no income or resources.
Kristen: (21:00)
Right. And in most states, if you get even $1 of SSI, then eligibility for Medicaid comes along automatically. These are both what we call means tested government benefits, which means that the person applying for SSI and Medicaid cannot have more than $2,000 of non-exempt assets. And that level has not been increased since 1989. So, it's ridiculously small.
Jill: (21:36)
I want to pause the conversation for a minute to clarify a couple of things:
First, Medicaid, for anyone who is unfamiliar, is a joint federal and state program that helps cover medical costs for certain individuals with limited income and resources.
Second, I want to add a bit of context to something Kristen mentioned about asset limits. These limits — specifically for SSI, which is a key gateway to Medicaid — have not been increased since 1989.
I’ll drop a link in the show notes to a September 2023 article from the Center on Budget and Policy Priorities called The Case for Updating SSI Asset Limits, but here are the major takeaways:
Right now, to qualify for SSI, individuals can have no more than $2,000 in non-exempt assets — or $3,000 for married couples.
If that limit had been adjusted for inflation since SSI was created in 1972, it would be around $10,000 for individuals and $15,000 for couples — about five times higher than the current limit.
The article also highlights why this outdated limit is such a problem:
Bottom line — these limits haven’t kept up with reality, and that puts a lot of people in impossible situations.
Okay, with that background, let’s get back to my conversation with Kristen.
(23:29) So, if we're talking about $2,000 of non-exempt assets, what might be examples of assets that are exempt or that are not exempt?
Kristen: (23:49)
Well, the classic example of non-exempt assets are a bank account, cash, or Series E bonds. We've had this come up with a lot of families where grandma and grandpa have been giving Series E bonds to their grandchild for 19 years and the value of that adds up. when the child applies for SSI, as an adult in their 18th or 19th year of life, those Series E bonds will stand in the way of qualifying for SSI and Medicaid. There's a very short list of assets that are exempt for purposes of this means testing. A person's home is exempt. One vehicle is exempt.
Jill: (24:42)
A home up to a certain value… am I correct there?
Kristen: (24:46)
Correct. And the value varies state by state. The Medicaid program of each state has different rules about the equity value of homes. And this is another thing to remind your listeners: SSI is a federal program with federal rules that apply to everybody, regardless of what state you're in. But the Medicaid program is a jointly funded program by both the federal government and the state. And there is quite a bit of variety in the rules that govern not only Medicaid for health insurance.
The other reason that our families want Medicaid in the mix is so that their loved one with a disability will be eligible for what we call Medicaid waiver services, which are means tested as well. And Medicaid waiver services provide for in-home, in-community support services that nobody's health insurance pays for. These services are designed to prevent the institutionalization of the individual with the disability for as long as possible.
Jill: (26:02)
Okay, so let me just ask you a few questions. So, we have the SSI, the Supplemental Security Income, and if an individual is eligible for even a dollar of that, they're going to get, right, not just become eligible for, they will get Medicaid. Is that right? And if they have Medicaid, they will also automatically have access to these Medicaid waiver services?
Kristen: (26:28)
Well, they will be eligible to apply for them. They may establish their eligibility for one of the waivers. But one of the crises in the special needs planning world is that the waiting lists to get funding for Medicaid waivers that you've already proved you're eligible for can be not just years long, but decades long.
Jill: (26:58)
Oh wow, okay.
Kristen: (27:00)
We're talking 10 and 20 years long to get funding. In the state of Georgia, for example, we've had excess revenue in the state budget in the billions of dollars, and yet our governor and house of representatives only allocates funding for 100 waiver slots a year, when there are 7,000 people on the waiver waiting list.
Jill: (27:32)
I’m stepping in to give a bit more context to Kristen’s comment about the waiver waitlist.
According to the Georgia Council on Developmental Disabilities, as of January 2024, more than 7,300 individuals in Georgia were on the waiting list for Medicaid waiver services. These waivers are designed to help individuals with disabilities live in their homes or communities while receiving the services they need — services that can help them avoid unnecessary institutionalization.
This focus on community-based care connects directly to an important legal milestone. In 1999, the United States Supreme Court issued its landmark decision in Olmstead v. L.C., holding that unjustified institutionalization of individuals with disabilities is a form of discrimination under the Americans with Disabilities Act.
The Court emphasized that people with disabilities have the right to receive services in the most integrated setting appropriate to their needs — meaning that, whenever possible, they should have the opportunity to live in the community rather than being confined to institutions.
Despite Olmstead’s promise, the reality in Georgia — and many other states — is that access to these critical community-based services is severely limited by funding and capacity.
In 2022, Democratic Senator Sally Harrell and Republican Senator John Albers led a bipartisan Senate Study Committee on People with Intellectual and Developmental Disabilities and Waiver Plan Access.
The committee made a series of unanimous recommendations for the 2023 legislative session, including funding 2,400 new waiver slots in the Fiscal Year 2024 budget, with a goal of eliminating the waitlist entirely within three years.
However, according to the Bobby Dodd Institute, in both 2023 and 2024, Georgia ultimately approved just over 500 waivers — and for the fiscal year beginning July 1, 2024, only 100 new awards were budgeted.
I’ll include links to the Georgia Council on Developmental Disabilities and the Bobby Dodd Institute articles in the show notes for your reference.
It’s also important to note that funding the waivers is only part of the equation. There’s a growing shortage of direct support professionals — the individuals who actually provide these vital in-home and community-based services. Factors like low wages, limited benefits, minimal training, and inadequate supervision have led to high turnover and a shrinking workforce, which makes it even harder for families to get the care they need once they secure a waiver.
With that context in mind, let’s get back to my conversation with Kristen.
(30:46) And can you remind me what types of services might these be, the Medicaid waiver services?
Kristen: (30:53)
So, Medicaid waiver services, like I said, are not covered by anybody's health insurance. And they include what we call direct care professionals, who come into the individual's home and provide them with whatever direct support needs they have. They include people that can accompany a college student to their college classes and help them take notes. Somebody that can drive a person around to their doctor's appointments. Things that just make living in their community realistic and where they can thrive.
Jill: (31:34)
The college services is an interesting thing to me, because if there is such a long wait list, what's the likelihood that a student who needs these services and doesn't even really know that they need to apply for them until they're in college, that individual actually obtaining those services…
Kristen: (31:52)
So, I've had many families who get on the waiting list for these waiver services when their child is born and it is apparent that they have a disability. I even have one client who knew she was going to have a child with Down syndrome, and she applied for her son's waiver while he was still in utero. And in fact, the Medicaid staff person didn't really know how to handle that request. It was the very first time that anybody had ever applied for waiver services before the baby was actually born. And that young man received his funding on his 18th birthday. So, it still took 20, almost 20 years being on the waiting list.
But because she applied so soon, those decades kind of ticked by as the child was developing their various skills. And that's a thing to remind your listeners is that it is never too early to start this planning. You know, a lot of people, especially if their child has an autism diagnosis, they wait and they delay and they don't do any planning, hoping that the child will grow out of it, you know, whatever the challenge is.
And that is not a good plan for many reasons, including this very long wait list for waiver services. Better to just get your special needs estate planning documents in place, and then if they do grow out of it, or there are wonderful therapies or drugs or whatever to address the consequences of the diagnosis, then you can modify your estate plan when that happens.
Jill: (33:42)
I wanted to go back to the grandparent who gave the Series E bonds. Because I think that's a really important point that you made and maybe something that a listener might want to be aware of is that there are a lot of individuals in our families, in our greater family circle, who might not understand that planning needs to be different for an individual who has special needs and just like this grandparent wanting to give the same bonds to the grandchild who had a disability — If the grandparent also wants to leave each grandchild $10,000 in their estate plan, that's going to be problematic also. So, just making sure that people address those very well-intentioned type of planning that might actually be very problematic for your child.
Kristen: (34:32)
Absolutely. And when we do a special needs estate plan for a family, we share with them that once the parents of the child with a disability make the decision to maximize all these sources of funding, including these government programs, basically the estate planning becomes a joint venture for the entire family.
Jill: (35:00)
Right.
Kristen: (35:01)
We have a special follow-up letter. I call it the Dear Friends and Family Letter…
Jill: (35:06)
Oh, excellent. I love that.
Kristen: (35:07)
That we prepare and the parents decide who needs to get the Dear Friends and Family Letter. And it describes in detail how a grandparent, or Aunt Jane, or any third-party outside of the clients that we're working with, can make a gift or a bequest to a special needs trust that is part of the network of special needs trusts that we referenced earlier, without blowing up the entire special needs estate plan that we have created. And because I've been doing this for so long, I have seen many perfectly wonderful special needs estate plans blown up by the well-intentioned generosity of family members.
Jill: (35:54)
And I would also say, if you're listening and thinking, well, I'll just say my child doesn't want it. The will leaves it, this loved one has passed away, there's a will leaving $10,000 to my child to have special needs. I'll just say he doesn't want it. I'm just going to say it's not that simple. We don't need to get into what that looks like, but it's not that simple.
Kristen: (36:16)
Exactly. If you try and do what's called a qualified disclaimer of a gift or a bequest that a person is legally entitled to, it's considered a ‘penalty transfer’ for purposes of qualifying for SSI and Medicaid. So that does not work. Absolutely.
Jill: (36:35)
I’m popping in to explain a term that you just heard — ‘qualified disclaimer.’
An individual who wishes to refuse a gift or inheritance can make a qualified disclaimer.
Once made, the qualified disclaimer cannot be undone, and the person making the qualified disclaimer, the disclaimant, is treated for tax purposes as if they never received the gift or inheritance in the first place.
In the case of the gift, the disclaimed property generally reverts to the person who made the gift; in the case of an inheritance, the property passes to the next person in line to inherit.
But here’s where it gets tricky for individuals receiving SSI — if an SSI recipient makes a qualified disclaimer, Social Security treats it like they received the gift and then gave it away, which can trigger a penalty period during which they lose their benefits.
And in case you’re wondering — no, this isn’t something you can just quietly do and hope no one notices. SSI recipients are required to report changes in their income and asset levels, like the receipt of a gift or inheritance, within 10 days after the end of the month in which it the change occurs. Failing to do that could bring even more penalties.
Now, let’s get back to Kristen as she walks through how to handle well-meaning gifts and inheritances without accidentally losing benefits.
(38:11) And just tell us what a penalty transfer, what does that mean?
Kristen: (38:15)
So, the government looks askance at people who try and divest themselves of excess assets in the process of qualifying for SSI and Medicaid. And if you try and give away assets that you already own, or to which you are legally entitled as part of paving the way for SSI and Medicaid eligibility, the government will find out about it, even if you don't tell them. And then they will consider that you received those assets, transferred them for no consideration, which means as a gift, or to a family member, or whatever. And then your eligibility for SSI and Medicaid will be delayed for the number of months that it would have taken you to spend down those gifted assets. And depending on the value of those gifted assets, that could be years that your eligibility is delayed because of that ‘deemed to be fraudulent’ transfer.
There are ways of dealing with assets that you already own or to which you become legally entitled. And we'll talk about that when we talk about the different kinds of special needs trusts that there are.
Jill: (39:40)
Okay, good, because I think with that explanation, I know it is somewhat complicated, but I do think that, Kristen, you were right to point out in a bit more detail why it's not an easy fix if something like that happens, and the importance of educating the full family, especially if you have that family and friends letter.
But I know that we talked about SSI and we talked about Medicaid. I want to continue on that vein, and talk about SSDI and Medicare because the S acronyms and the capital M government programs — it’s confusing. So, can you tell us how SSDI might be different from SSI and the Medicaid versus Medicare?
Kristen: (40:28)
Well, one of the really confusing aspects about special needs estate planning is learning about the veritable alphabet soup of acronyms that the federal government uses. And a lot of people get confused. I mean, SSI sounds pretty close to SSDI, but it is a completely different kind of disability benefit. It stands for Social Security Disability Income.
And once a person receives SSDI for 24 months, then they're automatically eligible for Medicare. Okay, so it's not automatic entitlement. Like with SSI, you're automatically eligible for Medicaid. With SSDI, there's this 24-month sort of delay.
And these benefits are not means tested. You could have a million dollars in your checking account and still be eligible for SSDI and Medicare. These benefits are based on a person's employment record. It could be the employment record of the person with the disability that we're trying to do this planning for. More often, it is the employment record of a parent of the child with the disability.
And the particular program that is under SSDI, that is relevant for families whose child never worked because of their disability, but whose parents have worked and have paid into the system, you know, these many years. It's called the Child Disability Benefit or the Disabled Adult Child Benefit. Those terms, you'll see both of them used.
So, their acronyms are CDB and DAC, to go along with SSDI and SSI. And so, families are understandably confused about the different kinds of benefits, whether they're the means tested variety or the employment linked variety. And we try our best to set them straight on all the different benefits that their child or loved one with the disability is going to be eligible for as a consequence of the diagnosis.
Jill: (42:54)
Just getting back to SSDI, that's based on an employment record. How might someone become eligible to receive SSDI?
Kristen: (43:05)
There are very specific qualification aspects for that. The diagnosis has to have, or the onset shall we say, of whatever the disability is, has to have happened prior to age 22. The child cannot be married unless they're married to another person with a disability. And the child cannot be capable of what we call Substantial Gainful Activity, SGA. If any one of those threshold requirements is not proven, then they don't qualify for this CDB/DAC.
But the number one reason why our families are interested in locking in this CDB/DAC benefit is because of the automatic qualification for Medicare. After the child has received 24 months of the cash benefit, the CDB or DAC benefit. And Medicare is pretty darn good health insurance. You know, God forbid you are at the sole mercy of Medicaid for health insurance because for a lot of our families, providers don't, you know, specialists, for example, don't take Medicaid.
And so, the families that we serve aren't necessarily interested in Medicaid for health insurance for their child, but rather for the Medicaid waivers that we talked about. And then, the possibility of qualifying for Medicare after 24 months of getting the CDB is a huge relief.
But, the other trigger for this DAC/CDB benefit is that the parent on whose work record the benefit depends has to do one of three things: Retire, become disabled themselves, or die. So, you don't generally have control over what time you're going to die, but you do have control over when you are going to retire and/or tap into disability benefits.
And so, part of our counseling is to chat with the family about whether disability or retirement is on the horizon. And if it is, and their child is not already on SSI, we delay the retirement or asking for disability benefits until we can get that child on SSI. So that all of these benefits are in the mix rather than just the employment linked benefits.
Jill: (45:54)
Okay, so with SSDI being based on an employment record, it is the employment record of the parent of an individual who has had an onset of a qualifying disability prior to age 22. Is that right?
Kristen: (46:11)
That's right.
Jill: (46:12)
Okay. And then in order for the child to receive child disability benefits, the parent for whose work record the eligibility is based on, must either retire, become disabled themselves, or die.
Kristen: (46:29)
Correct.
Jill: (46:30)
Okay. All right (Jill and Kristen chuckle). Do you think we've covered that sufficiently or did you want to say anything else?
Kristen: (46:37)
(Still laughing) I think that's probably enough. It's probably more than enough.
Jill: (46:41)
Okay, we don't... Yeah, it's lot of information. But it's all actually very important. And even though it seems like a lot of information, and we're going really in depth, unfortunately, we're not. There's still a lot that you're not saying, simply for purposes of not overwhelming people and, you know, in the interest of time. So, let's move on then and talk about special needs trusts.
That is a word that most people have heard, but it is confusing what it means. And when you're talking about the special needs trust, if you could also tell us about this network of trusts, how they work together that you create for a family.
Kristen: (47:26)
Okay. Well, a special needs trust, first and foremost, means that it is for the benefit of a beneficiary with a disability. And so, ‘special needs’ is kind of the politically correct term for the consequences of a person's disabling condition. And in the universe of special needs trusts, there are two basic types:
Most of the special needs trusts that comprise a comprehensive special needs estate plan are what we call third-party special needs trusts, that are funded solely with assets that derive from parents or grandparents, siblings, friends, someone other than the person with the disability.
Jill: (48:18)
Okay. So, the third-party special needs trust refers to a special needs trust created by an individual other than the one who has the disability.
Kristen: (48:28)
Well, created and funded. You know, who creates a third-party special needs trust is not as important as whose funding is going into the trust. And in contrast is what we call a first-party special needs trust, that is funded solely with assets that already belong to the beneficiary with the disability, or to which the beneficiary becomes legally entitled.
And we gave the example where grandma or some well-intentioned relative sends a gift or a bequest to the person with the disability that they can't say, “thanks but no thanks” to. They're legally entitled to it. And so, one way to deal with that scenario, rather than doing a qualified disclaimer — which doesn't work — you can take those assets and put them in a first-party special needs trust.
And any assets that are in a compliant special needs trust, whether third-party or first-party, do not count against the beneficiary for purposes of establishing and maintaining their eligibility for means tested government benefits.
Jill: (49:52)
Okay, so let's say that we have this $10,000 from the grandmother's will. The creation of the first-party special needs trust that is funded with that $10,000 by the individual with the disability, will that avoid the penalty transfer that you talked about earlier?
Kristen: (50:15)
It does avoid the penalty transfer... Any transfers of first-party property into a first-party special needs trust are not considered fraudulent… And if the beneficiary is a child under the age of 18 or an incapacitated adult, chances are you will need to go to your local probate court to have authority for one of the parents to transfer those funds into a first-party special needs trust.
But regardless of whether the beneficiary with the disability still has capacity to transfer those assets into the first-party trust or whether it's a parent or legal guardian transferring those assets, once the dust settles, the assets in the first-party special needs trust are considered exempt.
The biggest difference between a third-party special needs trust that's funded with somebody else's assets, and a first-party special needs trust that's funded with the beneficiary's assets, is the dreaded Medicaid payback obligation that applies only to a first-party special needs trust.
And so, the deal with the government is, “Okay, Mr. Beneficiary, we'll let you put grandma's $10,000 in a first-party special needs trust and still keep your eligibility for SSI and Medicaid. But if there's any money left in a first-party special needs trust when the beneficiary passes away, literally, the trustee calls up Medicaid and says, how much do we owe you?” Because Medicaid will start keeping a tab on what it funds for the benefit of a person the very day that they qualify for Medicaid.
Whether they qualify as a child, you know, soon after birth in the case of a birth injury, whether they qualify as an adult soon after their 18th birthday. And if there's any money left in a first-party special needs trust, when the beneficiary dies, the trustee has to satisfy and pay back Medicaid.
If there's no money left, in a first-party special needs trust when the beneficiary dies because the trustee has used all of the funds properly in accordance with the trust agreement, then Medicaid goes away empty handed.
One of the biggest other mistakes that traditional estate planning attorneys make, they've heard about this Medicaid payback thing, and they just assume that even third-party...
Jill: (53:04)
Yes, they put it in the wrong trust (chuckles).
Kristen: (53:08)
Yes, they do. And if you have a third-party special needs trust funded with grandma or the parents' assets, and there's a Medicaid payback obligation drafted into that trust by mistake, that's basically free money for Medicaid, okay?
And there's a lot of misinformation on the internet. Of course, your listeners know not to believe everything they hear and read on the internet. But I've actually had quite a few clients over the years, who say, “I'm not doing special needs planning for my child. The government just gets whatever’s left in a special needs trust.” And that is not true. Only first-party special needs trusts have a Medicaid payback obligation.
Jill: (53:54)
Right, or someone, the common concern generally, I think, with individuals doing planning is we don't want the government to get anything. That's the first concern. And it's only in very specific circumstances that the government can get something. And we're going to talk about, later, why you don't want to disinherit a child who has special needs. You know, just say, “Okay, I'm not going to leave anything because I don't want the government to get it.”
Well, it's important to educate yourself and that's what we try to do here on the podcast is educate so that we don't have to rely on generalizations, right? We can actually get in touch with the appropriate professionals who know how to do this.
But the Medicaid payback, and I think that might be a term that people hear thrown around... So, I know you said you essentially, you call Medicaid, and what that looked like for me — I only had to do it once; an individual with Down syndrome passed away — and she had to fund first-party special needs trust when her parents passed because they had not done the appropriate planning. And in Tennessee, Medicaid is TennCare. So, it was reaching out to somebody at TennCare who told me how much — I mean, they gave me a very specific amount — how much they had spent on her, and the trust paid back that money.
There was surprisingly a little bit left over, but that's exactly how the Medicaid payback works. You call Medicaid, they tell you what you owe, you pay it from the trust, and then you can distribute the remaining trust assets to whoever the remainder beneficiary might be.
But, during the individual's lifetime who has special needs, that trust can only be used for the benefit of that individual. So, it's not like you can say, “Okay, well, we'll just give it out to other family members for the Medicaid.” No, that's not allowed either.
Kristen: (55:49)
Exactly. So, one of the other significant differences between a first-party special needs trust and a third-party special needs trust is the so-called sole benefit rule, applies only to first-party special needs trusts. And as the name implies, the beneficiary with the disability is the sole beneficiary. In a third-party special needs trust, you can have multiple additional beneficiaries.
And in fact, many times, when a family is worried about overfunding the network of special needs trusts for their child with a disability — They've got neurotypical children that they want to benefit eventually, but their current concern is mostly for their child with a disability — With a third-party special needs trust, and we'll talk about the network of third-party special needs trusts in a second, you can have multiple lifetime beneficiaries of a third-party special needs trust.
And so, towards your question about satisfying the Medicaid payback isn't that big of a deal, for many families, there is no Medicaid payback. And here's why: we always include in the network of special needs trusts at least one first-party special needs trust, just in case something slips through the cracks, and something usually does, and the individual becomes legally entitled to assets that are going to blow up their eligibility.
But the vast majority of the other special needs trusts in the beneficiary’s network are third-party special needs trusts. You might have a third-party special needs trust under the will or the revocable trust of one or both of the parents.
You will also, if you work with us or somebody like us who embraces this concept of the network of trust, we put together a number of what are called inter vivos third-party special needs trusts. And that is a Latin term for during life. So, a testamentary special needs trust only comes into existence when the person's ‘matures’, as we say in the biz, when they die, but inter vivos special needs trusts are established and nominally funded during their lifetime, just waiting to receive post-mortem funding.
Jill: (58:30)
Post-mortem funding from a parent, for example.
Kristen: (58:33)
From the parents, typically. And so, most of the families that we serve, a retirement account is a huge asset of their estate, and they want their child with the disability to be able to share in that asset after both of the parents are gone. Well, not every special needs trust qualifies to be the payee of required minimum distributions from a retirement account.
And so, if a family has that as an asset, we create a fully compliant inter vivos third-party special needs trust that meets all the requirements of the internal revenue code, and the treasury regulations, and this new secure act that passed in 2020 that makes lots of people feel very insecure...
Jill: (59:25)
(Chuckling) Yeah, and I guess I would say to someone who's listening and is thinking, “why the heck do I need to have a separate trust just to receive retirement benefits?” It doesn't make sense. It is a very complicated area of law, and it seems to be getting more and more complicated (laughter continues).
Kristen: (59:47)
It does.
Jill: (59:49)
We're not going to go into the secure act, and a lot of attorneys haven't kept up with it either because they keep coming out with sort of new interpretations.
Kristen: (1:00:03)
Exactly.
Jill: (1:00:04)
Just know that if you have an attorney who knows what they're doing, yeah, the Secure Act is going to affect how you leave your retirement benefits, and just accept that.
Kristen: (1:00:13)
Exactly. Another thing that comes with a lot of our families is they want to include their child with a disability in an annual gift tax exclusion gifting program. And that is possible to do. That's the $19,000 a year that a person can give to any number of grateful recipients without having to pay any gift tax on those transfers.
And yes, we can draft a special needs trust that qualifies to receive gift tax exclusion gifts. So, if a family wants to make annual exclusion gifts, then we include a fully compliant inter vivos third-party gifting trust in the network of special needs trusts.
We also have something that I call a receptacle trust to get the gift or bequest from grandma or Aunt Jane in a qualifying manner. And so, the other thing that I would mention, in addition to the customized first-party special needs trust and third-party special needs trust that attorneys, like myself, and you when you're practicing do, there's something called a pooled special needs trust that you can set up both a first-party and a third-party sub trust at a pooled special needs trust, and those are ideally suited for people who just don't want to spend money on customized drafting by a special needs estate planning attorney, or it just doesn't make sense. And we refer families to the pooled special needs trust in Georgia all the time. They do a great job.
Jill: (1:01:59)
So, the trust is already set up. Is the pooled a third-party?
Kristen: (1:02:04)
So, a pooled special needs trust agreement is already created. It's called the master trust agreement. It has been drafted and approved by both social security and Medicaid. And so, one of the most popular aspects of using a pooled special needs trust is you don't have to hire a lawyer to join a pooled special needs trust. But there are both first-party pooled special needs trusts, and third-party pooled special needs trusts.
If your listeners are wondering, “how do I find out about a pooled special needs trust in my community?” Just Google “pooled special needs trust” and you will get the information that you need. Any assets that are in pooled special needs trusts are similarly considered exempt for purposes of eligibility for means tested government benefits.
Jill: (1:02:59)
That is helpful, the information on the pooled special needs trust. Also, I wanted to go back just briefly to talking about using the annual gift tax exclusion of $19,000. When an individual is given $19,000 outright, they obviously have the ability to use the money right away.
And that's part of the requirement for using that annual exclusion. If you put the money into a trust where the beneficiary doesn't have what's called in legal terms, a withdrawal, right, then that annual exclusion cannot be used.
So, can you give us in simple terms how that works when you're trying to use the annual exclusion for an individual with special needs?
Kristen: (1:03:46)
Of course. So, because this is a third-party special needs trust that is not bound by the so-called sole benefit rule, the way we qualify a gift to this third-party special needs trust is by giving the withdrawal, right, or the way to access the gift to secondary beneficiaries that have limited distributions.
And we usually use emergency healthcare disbursements, like siblings, for example, of the child with a disability. If those siblings are given the right of withdrawal, the right to theoretically access the gifted property, and they are also current beneficiaries with the child with a disability, that converts into the requisite present interest — what would otherwise constitute a future interest — which is not eligible for the annual gift tax exclusion.
Traditional estate planning lawyers do not know this, I won't call it a trick… technique. They don't know this technique.
Jill: (1:05:02)
Technique. Yes, no, that's a good word for it. I would also say that, so the limitation is $19,000 annually per recipient. So, you wouldn't want to have the secondary beneficiary also receiving outside of the trust $19,000 from the same donor. So, that's just a little tidbit to keep in mind, but thank you for clarifying that.
Kristen: (1:05:19)
The other thing, before we leave the network of special needs trusts, a lot of our clients use massive amounts of life insurance to help fund the estimated cost of their child's care both currently and in the future.
And so many times if a family has executed an irrevocable life insurance trust, there will be an embedded special needs trust for the child with the disability within the life insurance trust, and that becomes another trust in the network of special needs trusts.
But here's how, so, if the beneficiary with the disability has multiple third-party special needs trusts that can pay for things that he or she needs during his life, and then one special needs trust that's a first-party special needs trust funded with the assets of the beneficiary, we recommend that the trustee of all of these special needs trusts should be the same. So that the right hand knows what the left hand is doing.
And so, if the trustee of all these special needs trusts has two or three third-party special needs trusts they could use to fund something the beneficiary needs and one first-party special needs trust, and that first-party special needs trust is the only one that has the Medicaid payback obligation. Which one of the multiple special needs trusts that are available to pay for something that the beneficiary needs, which one do you think the trustees should deplete first?
Jill: (1:07:13)
I think they should, I want to answer this. I think they should use the first-party one because that's the one that has the Medicaid payback.
Kristen: (1:07:21)
Yes indeed. Exactly.
Jill: (1:07:22)
What do I win?
Kristen: (1:07:23)
You get a gold star. And so, for many families, they know, and their trustees know that all other things being equal, you should try and use up the assets of the first-party special needs trust first. And by the time the beneficiary with the disability passes away, there is little or no property left in the first-party special needs trust and the specter of the Medicaid payback goes away.
Jill: (1:07:59)
That brings us to the end of today’s episode — but we’re far from done with this important conversation. In the next episode, Kristen and I will continue unpacking the essentials of special needs estate planning. We’ll talk about how special needs trusts protect eligibility for means-tested government benefits, why choosing the right trustee is so important, and how to go about finding a trustee who truly understands the complexities of this kind of planning.
We’ll also break down some key action steps you can start taking right now — because let’s be honest, this is a lot to absorb, and sometimes the best way to cut through the overwhelm is to focus on one small step at a time.
Plus, we’ll talk about something I think every family needs to hear, why disinheriting a child with special needs is problematic — even if someone has told you that’s the “safe” way to protect benefits.
I also want to reassure you that if you’re feeling a little overwhelmed, that’s completely normal. Special needs estate planning is complex, and it often takes hearing this material more than once for it to really start to sink in.
If you’re someone who likes to read along or go back and review, visit the show notes for a link to our podcast transcripts. Because we edit those transcripts ourselves to make sure they’re clear and easy to follow, they don’t come out at the exact same time as the episode — they’re usually about a week or two later.
And, as a reminder, if you have general questions after listening, email me. If I see a lot of the same questions coming up, like I said before, Kristen and I will do a follow-up episode and help get you some clarification on those topics. You can find my email in the show notes.
Finally, a huge thank you to Kristen Lewis for joining me and sharing her incredible knowledge. Both she and I will meet you back here for Episode 9.
Before we wrap up, I want to remind you that while Kristen and I are attorneys, we are not your attorneys. The Death Readiness Podcast is for educational purposes only and is not legal advice. Use of this information without careful analysis and review by your attorney, CPA, and/or financial advisor may cause serious adverse consequences. We provide no warranty or representation concerning the appropriateness or legal sufficiency of this information as to any individual’s estate or related planning. For legal guidance tailored to your unique situation, consult with a licensed attorney in your state.
April: (1:10:53)
Hi, I'm April Jill's daughter. Thanks for listening to The Death Readiness Podcast. My mom always says that death readiness isn't just about planning, it's about the people you leave behind and the legacy you create for them. We hope today’s episode helps you think about how to take care of yourself and your loved ones, now and in the future. If you liked what you heard today, share this episode with someone you care about. Follow our show for free on Apple podcasts, Spotify, YouTube or wherever you're listening right now.