Monday morning. 10 A.M.
An attorney in your office brings in a new case. You soon learn that the new client has three children, one of which is a 19 year old with special needs. One of your client’s biggest concerns is managing the needs of the 19 year old with special needs. Your client is worried about pre-existing expenses for the child, potential modifications to her residence, as well as all of the costs of paying professionals to assist the child. Before the attorney, the client or you even start thinking about potential child support for the child, you must determine if the child has qualified for any government benefits and then evaluate how child support payments would affect those benefits.
The most common benefits to be aware of are Medicaid and Supplemental Security Income (SSI). In a nutshell, Medicaid is the government health care program for low-income individuals, while the Supplemental Security Income Program (SSI) is a monthly income assistance program which helps qualified individuals pay for food, clothing, and shelter.
While SSI benefits are not that substantial in Texas, SSI recipients automatically become eligible for Medicaid, which in turn can lead to greater benefits such as paid hospital stays, doctor bills, prescription drugs and even nursing home care. After speaking to your new client, you find out that the 19 year old child with special needs meets the initial requirements for SSI. What now? Your next step is to understand what the income limits, potential “in-kind support”, and resource limits are for a person eligible for SSI.
In Texas, the income limit for eligibility is tied to the maximum allowed federally, which for 2017 is $735.00 a month for an individual and $1103.00 for a couple. What that means is that if a person’s income falls below those limits, he or she is eligible for benefits and that benefit will be the difference between his or her income and the maximum allowed. So if a person has income of $300.00 a month, SSI will provide $435.00 to that person (maximum of $735.00 minus $300.00 in income). What is income you ask? Included in the definition are; money earned from wages or self-employment, investment income, gifts, rents and interests and annuities. Additionally, some dollar amounts are excluded from total income depending on the type of income. Related to income limits is the issue of determining if an individual is receiving what is known as “in-kind support” from a parent, friend or relative. In-kind support and maintenance (also commonly referred to as “ISM”) is unearned income in the form of food or shelter, or both. The Social Security Administration views food or shelter one receives as equal to one-third of the SSI benefit, and as such will reduce the benefit by that amount.
A potential reduction is not considered if the individual lives alone and pays for their own food and shelter; if the individual lives only with their spouse and minor children, and nobody outside household pays for food and shelter, or lives with other people and pays their share of the food and shelter.
Reductions could also be avoided if an individual is given food or shelter as a loan and pays it back.
Now on to resources. A person can have a maximum amount of $2,000.00 in countable resources ($3,000.00 for a married couple) in order to be eligible for SSI. The definition of countable resources includes; bank accounts, investments, real estate (not including primary residence) and personal property. Like any rule, there are some exceptions. These exceptions include an applicant’s home, the land the home is on, personal and household goods, as well as one vehicle so long as the vehicle is used for the transportation for the applicant or applicant’s family.
Now that we understand the interplay between income, resources and SSI eligibility, we can finally examine how child support payments affect SSI and Medicaid.
SSI defines child support as in-kind or cash payments to a child or a child’s legal representative or custodian to meet the child’s needs for food and shelter. For a child 18 or older, one hundred percent of a child support payment (minus $20.00 as an exemption) counts as a reduction against SSI. For example, if a child support payment is $300.00, a $735.00 maximum SSI payment would be reduced by $280.00 (the $300.00 payment minus the $20.00 exemption), which would lead to a new SSI payment of $455.00. While child support would lead to a total of $755.00 a month, (the $455.00 plus the support payment of $300.00), the addition of the child support only created an extra $20.00 benefit to the child.
Where this situation gets dangerous is when child support exceeds the SSI income limits. While dollar amounts are not harmed (in the above example the child receives a net gain of $20.00 dollars from the child support), SSI eligibility could be harmed if the amount of support exceeds the SSI income limit, which in turn will lead to a loss of Medicaid and all the benefits that come along with it.
To protect SSI and Medicaid benefits AND still receive child support, there are a few tools that can be employed. These options include a special needs trust, spousal maintenance and annuities.
A special needs trust is designed to hold assets of a person receiving public benefits, such as SSI and Medicaid. If a divorce decree directs the non-custodial parent to make child support payments to a special needs trust for the sole benefit of a child, then the valuable government benefits the child receives can be protected. This trust must be carefully drafted in order to not displace the monthly SSI payments. Essentially, by not directly supplying an adult disabled child with a child support payment, the adult disabled child’s income will not be increasing in the eyes of the government. Another alternative would be to set up and ABLE account for the person with disability and have the support paid into the ABLE account. A maximum of $14,000 per year may be put in an ABLE account. The ABLE account may be used for the benefit of the person with benefits, without counting as income for the person with disability.
Spousal support or contractual alimony paid directly to the parent of an adult child, in lieu of child support to the adult child, will also not be considered income of the adult child. This money could then be applied to the care of the adult child without interfering with SSI payments or Medicaid benefits. Some clients may say that they don’t need a child support order and the supporting parent will just voluntarily and informally pay support. This option also comes with risk. The Social Security Administration, might impute child support if none is Order that could but doesn’t provide support, which would reduce the SSI benefits by the amount of imputed support. It is best to have the Order provide some amount of support.