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An inheritance can jeopardize the government benefits: received by individuals with special needs.

By exceeding specific income or resource levels, an inheritance can disrupt or eliminate entirely the state and federal benefits that are received by an individual with a disability, or other special needs. The same may be true if the beneficiary of the benefits receives a financial gift (or gift of property that can be sold for cash), wins a lottery, or receives a legal damages award or settlement. Any number of financial windfalls can result in the reduction or loss of government benefits.

But there are strategies that you can use to avoid any interruption of benefits. However, the rules applicable to these strategies have tightened in recent years. And different strategies should be used for different government disability programs.

There are two principal programs run by the Social Security Administration (SSA)--the Social Security Disability Income (SSDI) program and the Supplemental Security Income (SSI) program-that pay money to persons who are disabled and, because of their disability, cannot engage in "substantial gainful employment" (SGE), meaning the performance of significant physical and/or mental activities in work for pay or profit, or in work of a type generally performed for pay or profit, regardless of the legality of the work.

Social Security Disability Insurance

SSDI pays benefits to you and certain members of your family if you worked a minimum number of work quarters and paid Social Security taxes (in which case you're considered "insured" under the SSDI). In most cases, you will continue to receive benefits as long as you are disabled. However, there are certain circumstances that may change your continuing eligibility for disability benefits. For example, your health may improve to the point where you are no longer disabled. Or your disability benefits will stop if you work at a level that the SSA considers "substantial." In 2006, average earnings of $860 or more per month ($ 1,450 or more per month if you are blind) were usually considered substantial. In 2007, that amount increased to $900 or more per month ($1,500 or more per month if you are blind.)

Your other assets, such as the amount you have in the bank, stocks and bonds, lottery winnings, etc., will not affect your eligibility for SSDI benefits. All that is required for SSDI eligibility is that you're disabled, are insured under the SSAs rules (as described above), and are not capable of substantial gainful employment. However, if you're receiving SSDI benefits and the SSA finds that you're engaged in work that it considers substantial (i.e., for 2007, earning $900 or more per month after any disability-related work expenses), it has the authority to require you to repay the benefit overpayment amounts and/or cancel your SSDI eligibility altogether.

Supplemental Security Income

SSI, unlike SSDI, is a "needs based" program providing monthly income to people who are age 65 or older, or are blind or disabled, and have limited income and financial resources. Effective January 2007, the SSI payment for an eligible individual is $623 per month and $934 per month for an eligible couple. If you are married, and only one person is eligible, a portion of your spouse's income may be counted. In addition, your financial resources (savings and assets you own) cannot exceed $2,000 ($3,000 if married). You can be eligible for SSI even if you have never worked in employment covered under Social Security.

In most States, SSI beneficiaries also can get Medicaid (medical assistance) to pay for hospital stays, doctor bills, prescription drugs, and other health costs (in 32 states and the District of Columbia a person who qualifies for SSI automatically qualifies for Medicaid). SSI beneficiaries may also be eligible for food stamps (in all states except California). SSI and Medicaid eligibility is frequently required to be entitled to other services, such as group homes, community residences, and some rehabilitation services.

Unlike SSDI, all assets (not just wages and earnings) are "resources" for SSI purposes and count against the amount of benefits a SSI beneficiary receives. Resources include cash; bank account(s), stocks, U.S. savings bonds; land; life insurance; personal property; automobile(s); anything else you own which could be changed to cash and used for food or shelter; and deemed resources (resources of another person that may be deemed to be your income, such as a minor child and the resources of his or her parent). SSI regulations also expressly name inheritances and gifts as "income," that the SSA defines as something an individual receives and can use to meet food, clothing, or shelter needs. For property other than cash to be considered income, the individual who receives it must have the legal right, authority, and power to convert it to cash (by selling it, for example).

If a SSI beneficiary earns more in a month than the SSI limit, the SSA can recover $ I for every $2 over the limit. If the excess earnings persist for more than nine months, the beneficiary can lose his or her SSI eligibility altogether. And if the beneficiary's resources top $2,000, the SSA can deny benefits and require that the amount of assets be depleted below the $2,000 threshold.

The Impact of An Inheritance

SSDI benefits are not affected by an inheritance, nor by a financial gift or even by winning the lottery. Even a billionaire who becomes disabled can receive SSDI benefits if he or she otherwise satisfies the SSAs requirements.

SSI, however, is quite a different story. An inheritance-which under the SSAs rules includes the proceeds of a life insurance policy and retirement accounts under which you're named as beneficiary-is considered income in the month of receipt (an inheritance or gift of property is deemed income at the earliest point at which the property can be disposed of and converted to cash under state law). In the month the inheritance is received, the SSI beneficiary will lose his or her eligibility for SSI benefits because of the receipt of excess income (assuming the inheritance exceeds the monthly SSI limit). And the SSA considers any inherited amounts retained in the succeeding month a resource which, if over the $2,000 SSI threshold, could again render the SSI recipient ineligible for SSI benefits (you can reapply for benefits once your resources fall below $2,000).

Trust Strategies

A Special Needs or Supplemental Needs Trust has long been considered the best strategy to prevent an inheritance or gift from being counted as a resource for SSI purposes and killing a child's eligibility for government benefits. But due to a law passed in 1999 (the Foster Care Independence Act, or "FCIA'), the rules governing these trusts have tightened considerably. No longer can a person receive a gift or bequest in one month and sidestep the SSI resource rules by giving the money to a relative to set up a trust in the next month for the person. And the FCIA's irrevocable trust provisions eliminate the chance for an SSI beneficiary to set up a trust that's out of the beneficiary's control to provide payments for support and maintenance.

The SSA now takes pains to determine if any trust assets or income can be ascribed to the disabled SSI beneficiary. If they can, the SSA may invalidate the beneficiary's SSI eligibility until assets are spent down below $2,000. Under the FCIA, the SSA can also determine that amounts that are paid for the benefit of a person, but are paid to someone else, are transfers of assets for less than fair market value (and can be counted as income or resources of the person).

However, for certain trusts set up after January 1, 2000, the law provides specific exceptions to the rules counting trusts as income or resources for Medicare and SSI purposes. The resource counting provisions do not apply to:

* A Special Needs Trust set up by a parent, grandparent, legal guardian, or court, for the benefit of a disabled individual under age 65 and using the individual's own assets. Although the exception for this type of trust is called the Special Needs Trust exception, it applies to any trust meeting the preceding requirements and does not have to be a strict special needs trust.

* A Pooled Trust established by a disabled individual, parent grandparent, legal guardian, or court, solely for the benefit of the disabled individual, and containing separate accounts for each beneficiary, but in which assets are pooled for investing and management purposes. This trust must be established using the individual's own funds and must be managed by a nonprofit association. This trust is sometimes called a "master trust" because it contains the assets of many different individuals, each in separate accounts established by individuals, and each with a beneficiary. By analogy, the pooled trust is like a bank that holds the assets of individual accountholders.

In both of the above trusts, the trust must provide that the state will receive all amounts remaining in the trust upon the death of the individual up to an amount equal to the total medical assistance paid on behalf of the individual under a state Medicaid plan.

There's much to know about trusts: which type to choose, how they are funded, who will manage the trust on behalf of the person with a disability or other special needs, and how funds are disbursed. But a trust can be one of the most valuable tools you put in place to ensure the ongoing care and well being of the person you care for--for many years to come. The personnel of MassMutual's SpecialCare program can assist you and your attorney in drafting and establishing an appropriate Special Needs Trust. Certified specialists will work with you and your professional advisors--your banker, accountant or financial planner, lawyer, social workers and health care providers--to review your financial picture and offer the best options to fit the needs of each situation. For more details, visit MassMutual's website at, or call 1-(800)-272-2216.

SpecialCare[TM] is a program developed by the Massachusetts Mutual Life Insurance Company (MassMutual) that provides access to information, specialists, and financial solutions that can help improve the quality of life for people with disabilities and other special needs and their families/caregivers. Insurance products offered through Massachusetts Mutual Life Insurance Company. Call today to learn more about how we can help. Or visit

About MassMutual

MassMutual Financial Group is the fleet name for Massachusetts Mutual Life Insurance Company (MassMutuab and its affiliates, with more than 13 million clients and over $395 billion in assets under management at year-end 2005.

Founded in 1851, MassMutual is a mutually owned financial protection, accumulation and income management company headquartered in Springfield, Mass. MassMutual's major affiliates include: OppenheimerFunds, Inc.; Babson Capital Management LLC; Baring Asset Management Limited; Cornerstone Real Estate Advisers LLC; MML Investors Services, Inc. and The MassMutual Trust Company. FSB. MassMutual is on the Internet at
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Title Annotation:Special Care[SM]
Publication:The Exceptional Parent
Geographic Code:1USA
Date:Apr 1, 2007
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