By Thomas D. Begley, Jr. Esquire, CELA
CRISIS AND KINDNESS
In times of crisis, people often show just how caring humanity can be. Major humanitarian relief efforts respond to large-scale natural and unnatural disasters. Strangers donate time and money to individuals injured in tragic accidents. Often, the first instinct when you learn that someone is hurt is to give money. Unfortunately, unbeknownst to the donor, this kind and selfless act can have devastating ramifications for the injured individual and his or her family.
If the injured individual or a family member is receiving means-tested government benefits, such as SSI or Medicaid, any extra income or assets could potentially lead to disqualification for benefits. Further, some people might hold a fundraiser in an effort to assist the injured party without a thorough understanding of the laws regulating them. Most dangerous are those “lone rangers” who hold fundraisers or collect money without notifying the family or providing the family with an opportunity to ensure that the proper safeguards are in place.
Crowd funding through organizations such as “Go Fund Me,” “Kickstarter” or “Indiegogo” also perform a valuable service in raising funds. However, unless the funds are handled correctly they may result in an unintended loss of public benefits for people with disabilities.
DEFINITION OF DISABILITY AS DETERMINED BY THE SOCIAL SECURITY ADMINISTRATION
If you are considering establishing a special needs trust, it is necessary to determine whether the individual is considered disabled within the definitions of the Social Security Administration (SSA).
For adults, disability is defined by SSA as the inability to engage in any substantial gainful activity (SGA) by reason of any medically determinable physical or mental impairment(s) which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months.
A child under age 18 will be determined disabled if he or she has a medically determinable physical or mental impairment or combination of impairments that causes marked and severe functional limitations, and that can be expected to cause death or that has lasted or can be expected to last for a continuous period of not less than 12 months.
A “medically determinable impairment” is one that results from anatomical, physiological, or psychological abnormalities which can be shown by medically acceptable clinical and laboratory diagnostic techniques. The impairment must be established by medical evidence.
WHO IS THE INTENDED BENEFICIARY?
It is often unclear when fundraisers are established whether the beneficiary of the fundraiser is the individual with a disability or family members. The answer to that question makes a big difference as to what strategies need to be employed.
Many individuals with disabilities receive important public benefits. Some of these public benefits are means-tested. These include:
- Supplement Security Income (SSI)
- Medicaid Waiver Programs
- SNAP (Food Stamps)
- Federally-Assisted Housing
- State Disability Services (i.e., DDD)
“Means-tested” means that there are limits on income and/or assets for program eligibility. For SSI purposes, income and assets of a parent living with a child with disabilities under age 18 are deemed to the child with disabilities. It should be noted that when used in this article “child” can refer to an adult child.
Other public benefits are not means-tested. These include:
- Social Security Disability Income (SSDI)
WHEN ARE FUND CONSIDERED RECEIVED?
Receipt of funds affects eligibility for means-tested public benefits.
When funds are considered received may seem simple enough, but the timing can have a major effect on individuals already receiving benefits. According to the Social Security Administration’s Program Operations Manual System (POMS), income is counted at the earliest of the following:
- When the payment is received,
- When the payment is credited to the beneficiary’s account, or
- When the payment is set aside for the beneficiary’s use.
POMS SI 00810.030(A). It may be difficult to determine when income is counted for a special needs trust. The Social Security Administration may take the position that receipt occurs when the funds are held in a separate account, pending the establishment and funding of a special needs trust.
WHAT ARE THE OPTIONS WITH RESPECT TO DISPOSING OF THE FUNDS RECEIVED THROUGH A FUNDRAISER?
Depending on the amount of money raised, there are several alternatives for using the funds received from the fundraiser.
? Funds Intended for Family Members of Child with Disabilities. If it is clear that the funds are raised for the family of a child with disabilities who is receiving means-tested public benefits, the family member can:
- Spend the Money. The family member can spend the money on behalf of the individual with disabilities. However, if the individual with the disability is a child under the age of 18 and is living with a parent, the funds received from the fundraiser by the parent are deemed to the child for SSI purposes and may cause a loss of means-tested public benefits. If there is to be a spend down, it should occur during the money the funds are received.
- Third Party Special Needs Trust. The family member can establish a Third Party Special Needs Trust to hold the money and use it for the special needs of the individual with disabilities. The assets in the Third Party Special Needs Trust are not counted as assets for public benefit purposes. Income is not counted, if distributed directly to third parties. The advantage of a Third Party Special Needs Trust, as opposed to a Self-Settled Special Needs Trust, is that the administration is much more flexible. Distributions are not limited by the “sole benefit of” rule discussed below, and there is no Medicaid payback on the death of the beneficiary with disabilities.
- ABLE Account. An alternative to a Third Party Special Needs Trust is an ABLE Account. However, an ABLE Account can only be funded by contributions up to a maximum of the gift tax annual exclusion each year. This is not a maximum per individual donor, but rather a maximum on total contributions. For 2017, the maximum is $14,000.
? Funds Intended for an Individual with Disabilities. If the funds are raised for an individual with disabilities, the individual has several alternatives:
- Self-Settled Special Needs Trust. An individual Self-Settled Special Needs Trusts, also known as a (d)(4)(A) Trust, may be established when donated funds are identified as clearly not for the benefit of the individual with a disability. Self-Settled Special Needs Trusts are not as flexible as Third Party Special Needs Trusts in that distributions are limited for the “sole benefit of” the trust beneficiary and there is a Medicaid payback on the death of the beneficiary.
- ABLE Account. Another alternative is to establish an ABLE Account.
- Spend Down. The individual may also consider spending down the money in the month of receipt.
- Accept the Money. Accepting the money would cause a loss of means-tested public benefits.
- Transfer the Money. Transferring the money to a third party would likely result in a transfer of asset penalty if the beneficiary is receiving SSI, Long-Term Care Medicaid or SNAP.
- Guardianship Account. Another alternative would be to place the funds in a guardianship account on behalf of the minor or incapacitated person. However, the funds would then be considered funds of the individual with disabilities and would cause a loss of means-tested public benefits. This is never a good option.
? Pooled Trust. For smaller amounts of money (i.e., less than $150,000), Pooled Trusts are available. A Pooled Trust is a community trust operated by a non-profit disability organization. Fund are pooled with other members for investment purposes, but each individual has a separate subaccount. Individuals sign a Joinder Agreement. The Joinder Agreement can be for either Third Party or Self-Settled Trusts.
Under I.R.C. §102(a), gifts are excluded from the definition of income. It should be noted that this is not true for public benefit purposes. Therefore, there is no tax consequence to the individual receiving the gift. Generally, there is no tax deduction for contributions to fundraisers, unless a gift is made to or for the use of a qualified charitable organization. If the contribution is to a specific individual, it does not qualify as a charitable deduction.
 I.R.C. §170(a) and (c); Rev. Rul. 79-81.