Reasons to set up a Third Party Supplemental Needs Trust as an Accumulation IRA Stretch Trust

In a previous post, I described the Reasons to Set up a 3rd Party Supplemental Needs Trust as an Irrevocable Life Insurance Trust.  The same Third Party Supplemental Needs Trust can also be set up as an IRA Stretch Trust. 

 If a Special Needs person is named as beneficiary of an IRA, 401k, 403b or any other asset, that could ruin their ability to qualify as for SSI and Medicaid.  However, paying retirement money to a traditional Third Party Supplemental Needs Trust can cause income tax problems.  Accordingly, we usually recommend that the Supplemental Needs Trust be created with provisions that allow a slow withdrawal of the retirement account over the lifetime of the beneficiary into a trust for the following reasons:

• A traditional Third Party Supplemental Needs Trust can be named as a beneficiary of a retirement account, however, that is usually very tax inefficient from an income tax perspective as the IRS will require the retirement money to be paid to the trust within 5 years, and it will be taxed and the very high trust rates.  
• To minimize income tax consequences, the trust should be designed as a modified IRA Stretch Trust.
• An IRA Stretch Trust requires the Trustee to withdraw a certain amount each year from the retirement accounts which name the trust as the beneficiary.  The amount the Trustee is required to withdraw from the retirement account into the Supplemental Needs Trust is known as the Required Minimum Distribution (RMD) Amount.  The Required Minimum Distribution Amount is a based upon a formula set by the IRS that is tied to the life expectancy of the beneficiary of the trust (the Special Needs person). 
• By taking out only the RMD each year, the IRA can continue to grow tax deferred. After the trustee withdraws the RMD from the retirement account into the Third Party Supplemental Needs Trust, the trustee may leave the money in the trust or distribute it to the Special Needs person subject to the normal limits of Special Needs Trusts.  
• PLANNING NOTE: This should never be set up as a Conduit Stretch Trust as that will ruin the benefits of the Special Needs Person.  A Conduit Stretch Trust requires the RMD be distributed to the beneficiary every year.
• PLANNING NOTE: In order to establish the Special Needs Person's life as a measuring life for IRS tax purposes, and have the Third Party Supplemental Needs Trust be treated as an Accumulation Trust, upon the death of the Special Needs Person, the balance of the trust and the retirement money can ONLY be paid to a person who is younger than the Special Needs Person.  
• PLANNING NOTE: If you think that the client may wish to benefit an older sibling of Special Needs Person, consider making that older sibling the measuring life.

One downside to naming a properly designed Third Party Special Needs Trust with accumulation provisions as the beneficiary of a retirement account is that the income tax rates for trusts is higher than that of an individual.  However, if you wish to engage in special needs trust planning and provide a special needs person access to money from a retirement account, this appears to be one of the most tax efficient ways of doing so while also preserving the the government benefits of the special needs person.  

It should be noted that when doing Special Needs Trust Planning, sometimes, if parents have more than one child, they will name name a non Special Needs child as beneficiary of retirement money and a trust for the Special Needs Child as beneficiary of other assets. This is a completely viable alternate type of plan, but care should be considered regarding what happens if that other child predeceases the parents.

Reasons to set up a 3rd Party Supplemental Needs Trust as an Irrevocable Life Insurance Trust

Recently, I wrote a post explaining the differences between a First Party Special Needs Trust and a Third Party Supplemental Needs Trust.  As you are aware, the goal of a Special Needs Trust or a Supplemental Needs Trust is to provide financial resources to a Special Needs Person in a way that will not cause them to lose their government benefits, like Medicaid. Today, I wanted to explore the benefits of a Third Party Supplemental Needs Trusts in more depth.

A Third Party Supplemental Needs Trust can be created under a Will or it can be created as a stand alone trust by the parent or grandparent.  We usually recommend that it be created as a stand alone Irrevocable Life Insurance Trust for the following reasons:

• Money/Insurance held by the Third Party Supplemental Needs Trust will pass free of estate tax and inheritance tax.  However this may not be a concern for federal estate taxes if your assets are below the current threshold of $11.2 million.  (Remember, the federal estate tax gets reduced to $5 million dollars, indexed for inflation, in 2026.)  
• Other relatives who wish to benefit the special needs child can name the stand alone trust as a beneficiary under their Will or as beneficiary of a life insurance policy. This is important because otherwise each parent, grandparent, aunt, uncle and sibling that may want to benefit the special needs person would have to set up their own special needs trust, creating complexity and extra costs.
• We frequently recommend that parents of a Special Needs child purchase a permanent life insurance policy to guarantee money will be there for the Special Needs Child as other assets may dissipate. 
• A Third Party Supplemental Needs Trust and Life Insurance Trusts are protected from creditors of both the parents and child.
• Creating a stand alone trust during your lifetime generally avoids the need to get the Court involved.  This can come up in various different ways:
• Every time the trustee of a Trust created under a Will changes, it requires Court permission.  This is not true of a trust that is created as a stand alone trust.  A change of trustee of a stand alone Third Party Supplemental Needs Trust or Life Insurance Trust can be accomplished very easily and usually without having to go to Court if the documents are drafted properly.
• If the trust needs to be modified or moved to another jurisdiction, the document can provide mechanisms for these changes without getting Court permission.  A frequent reason to move a trust is to get better protection or lower the income tax consequences.
• The beneficiary of a stand alone trust has access to funds more quickly than if it were to go through an estate administration under a Will. (Probate can take months or even years.  If a Special Needs Person is reliant on a certain amount of monthly funding, naming a Third Party Supplemental Needs Trust as the owner and beneficiary of any insurance policy can be a tax efficient and quick way to guarantee that money will be available in a manner that will not cause the Special Needs Person to lose his or her government benefits.

NOTE: A stand alone trust is frequently referred to as an Inter Vivos Trust.  There are many types of stand alone trusts, including Revocable Trusts.  So while a Third Party Supplemental Needs Trust can be set up as a Revocable Trust, we usually recommend it be established in the same manner as an irrevocable life insurance trust for tax reasons.   

As you can see, there are many benefits to creating a Third Party Supplemental Needs Trust during your lifetime, rather than having it created under your Will.  If you have any questions regarding the best way to set up a Supplemental Needs Trust or a Special Needs Trust for a loved one, please don't hesitate to contact one of our estate planning attorneys.

Can the Trustee of a New Jersey Special Needs Trust Buy Clothing?

Although the federal government clearly changed the rules in 2005 to allow a Trustee of a First Party Special Needs Trust to buy an unlimited amount of clothing for person receiving Medicaid and SSI, there is still a lot of confusion regarding this issue in New Jersey.

New Jersey Administrative Code Section 10:71-4.11, which was enacted in 2001, states that if a Trustee of a Special Needs Trust purchases clothing for someone who has qualified for Medicaid or SSI, it will be considered income to the beneficiary and could reduce the beneficiary's government benefits.  Moreover, if the trust allowed distribution for purchase of clothing, it had the possibility of having the entire trust counted as an asset that may disqualify the beneficiary from benefits.  THIS IS OLD LAW.

To quote from the new law, POMS S.I. 01130.430: "A change in the regulations, effective March 9, 2005, establishes that the resource exclusion for household goods and personal effects no longer has a dollar limit. As a result, beginning with resource determinations for April 2005, SSA no longer counts household goods and personal effects as resources to decide a person’s eligibility to receive Supplemental Security Income (SSI) benefits."  The 2005 law goes on to define "personal effects" to include clothing.

There are several reasons why things are still so confusing:

1. New Jersey has not updated the Administrative Code to reflect the change of law on the federal level by POMS S.I. 01130.430.  The Social Security Regulations clearly override any state rules with respect to eligibility for Medicaid and SSI benefits.  So when Social Security updated its rules in 2005, the NJ rules were automatically updated as well.
2. When looking up the NJ rule online, there is a lot of bad, old information on many websites.
3. When looking up the NJ Administrative Code, which is free on Lexis-Nexis (thank you by the way), unfortunately it has the most recent year next to the Code.  That has the unfortunate side effect of making it look like a new and current law, even if it is not.

So, to be clear - a Trustee of a Special Needs Trust (regardless if it is a first party trust or a third party trust) can buy clothes for the beneficiary and not be concerned that such expenditures will be counted as income or that the beneficiary will lose his or her government benefits.  That being said, if you are spending an excessive amount on clothes, you should probably expect extra scrutiny from the government and potential problems because they could make the argument that the person is just taking the clothes back in exchange for cash, and the fight wouldn't be worth it.

Right to Name Guardian for Minor Children When Parents are Separated or Divorced

I was discussing the affect of a divorcee naming a guardian for minor children in a Will with a few colleagues the other day and I thought I would share some of our findings. 

When there is a custody dispute between a natural parent and a third party, the law regarding who has custody of the child is governed by the case:Watkins v. Nelson, 163 N.J. 235 (2000).

The court found that there is a presumption in favor of the natural parent which arises from a parent’s fundamental liberty interest protected by the Due Process Clause of the Fourteenth Amendment to the United States Constitution and is rooted in the right to privacy.  However, a parent’s right to custody of his or her own child is not absolute. The presumption in favor of the natural parent.  This presumption can be rebutted by a showing of gross misconduct, unfitness, neglect, or exceptional circumstances affecting the welfare of the child.

When a third party seeks custody of a minor child (or an incapacitated individual), the court must engage in a two-step analysis. First, the court must determine whether the presumption in favor of the legal parent is overcome by either a showing of unfitness or exceptional circumstances. If either is satisfied, the court must then decide whether awarding custody to the third party would promote the best interests of the child.  So, at the end of the day, a court will decide who should have custody based upon what is in the best interests of the child.

In New Jersey, there also a statute on point as to the decedent's right to name a guardian and to what extent it will be honored.  The relavent statute is: N.J.S.A. § 9:2-5. Death of parent having custody; reversion of custody to surviving parent; appointment of guardian by superior court; removal
In case of the death of the parent to whom the care and custody of the minor children shall have been awarded by the Superior Court, or in the case of the death of the parent in whose custody the children actually are, when the parents have been living separate and no award as to the custody of such children has been made, the care and custody of such minor children shall not revert to the surviving parent without an order or judgment of the Superior Court to that effect. The Superior Court shall have the right, in an action brought by a guardian ad litem on behalf of the children, to appoint such friend or other suitable person, guardian of such minor children, and shall have the right to remove such guardian, and to appoint a new guardian or guardians, and to make such judgments and orders, from time to time, as the circumstances of the case and the benefit of the children shall require.

Even if the court does not honor your request for guardian, you can still set up a trust for your child, and you can name anyone you wish to act as trustee to manage your funds until the child is old enough to handle his or her own finances.  This is important because otherwise the guardian or surviving naturual parent will have complete authority over these funds.

To summarize, if you do not want the surviving parent of the child to receive legal custody of your child:
1) It is a good idea to create a Will;
2) You should name a guardian under your Will for your minor children and any incapacitated children because it gives that proposed guardian standing to sue the surviving natural parent for custody (I would also recommend giving reasons in the Will or elsewhere to estatablish why the person you are proposing as guardian would be better suited to care for the child than the surviving parent);
3) The courts do not have to honor your request as to whom you name as guardian, they will try to determine the best interests of the child; and
4) Regardless of custody issues, you should set up trusts for your children and name a trustee to manage the funds until the child is of age, otherwise the surviving parent will have authority as natural guardian to spend that money as he/she sees fit.

Termination Clause in Special Needs Trust

The Social Security Administration has issued new rules, SI 01120.199, related to the early termination of Self Settled Special Needs Trusts created on or after January 1, 2000. Self Settled Special Needs Trusts, also known as First Party Special Needs Trusts established under Section 1917(d)(4)(A) of the Social Security Act. are designed to avoid being counted as a resource that would affect the trust beneficiary's right to receive Supplemental Security Income (SSI) and Medicaid.

Typically, a Self Settled Special Needs Trust does not terminate until the death of the beneficiary. The new rules provide guidance on how beneficiaries of these trusts can still qualify for government benefits in the event the trusts contain an early termination provision.

An early termination provision is a clause that would allow the trust to terminate before the death of the beneficiary. A termination clause is very important to have in a special needs trust in case the trust beneficiary is no longer disabled, becomes ineligible for SSI and Medicaid, or when the trust fund no longer contains sufficient assets to justify its continued administration.

The most common need for an early termination clause comes when a child wins a very large personal injury settlement. Settlement agreements will routinely require that a special needs trust be established. However, if in twenty years the child is fully functioning and not in need of SSI or Medicaid, a special needs trust will be overly restrictive.

A special needs trust with a termination clause will qualify under the new rules if the trust:

1. has a payback provision on the date of the termination. This means that the trust has to pay to the State all amounts remaining in the trust up to an amount equal to the total medical assistance paid on behalf of the beneficiary by the State;
2. only makes payment of the balance remaining directly to the trust beneficiary (reasonable administration expenses and taxes are allowed to be paid to other parties); and
3. gives the decision on whether or not to terminate the trust to a person other than the trust beneficiary.

In the event you have an existing trust that does not meet the termination standards set forth by this new rule, such trusts will be evaluated under Section 1613(e) of the Social Security Act.

SI 01120.199 also apply to Pooled Trusts established under Section 1917(d)(4)(C) of the Social Security Act. SI 01120.199 will take effect October 1, 2010.

Self Settled Special Needs Trusts

There are generally two types of private special needs trusts:

1. 1) Third Part Special Needs Trusts; and
2. 2) Self Settled Special Needs Trusts (also known as First Party Special Needs Trusts or D-4A Trusts).

A person who is receiving (or about to receive) Medicaid and Supplemental Security Income (SSI) may wish to consider establishing a Special Needs Trust just before he or she is about receive a substantial gift, inheritance or personal injury award. By receiving money outright, the person will no longer be eligible to receive SSI and Medicaid.

The Social Security Act (Section 1396p(d)(4)(A)) specifically allows a Special Needs Trust to be created for a person so that the person can continue to qualify for Medicaid and SSI. This particular trust is called a Self Settled Special Needs Trust because it is being funded with the person's own money (as opposed to money given to a trust by a third party).

The prime difference between the terms of a Self Settled Special Needs Trust and a Third Party Special Needs Trust is that when the beneficiary of a Self Settled Special Needs Trusts dies (or the trust terminates), the balance in the trust must pay off any Medicaid liens that have been built up. If there money left in the trust after that, the balance can be paid to the beneficiary's relatives. With a Third Party Special Needs Trust, there is no payback provision necessary.

The reason why a beneficiary of either a Self Settled Special Needs Trust or a Third Party Special Needs Trust can qualify for SSI and Medicaid is because those trusts are limited in what they can pay for. In general, the trust may not pay for food, shelter, electricity, gas or water and it may not pay for anything that can be converted into food, shelter, electricity, gas or water. So cash should almost never be distributed to a beneficiary from the trust. (Note: there are special rules about a trust owning a home)

A Self Settled Special Needs Trust can be created on behalf of the individual who receives the money by the person's guardian, the person's parent or grandparent, or by a court (as often happens in personal injury settlements). The beneficiary must be under the age of 65 when the trust is created and funded and the trust must be for the sole use of the beneficiary.

The costs of creating a Special Needs Trust vary from attorney to attorney, however, hundreds of thousands can be saved by setting up one properly.

Special Needs Planning in NJ - Part 4 of 4

Special Needs Trusts and Supplemental Needs Trusts

In Part IV of this Series, I want to discuss the role of Special Needs Trusts and Supplemental Needs Trusts in estate planning.

"Special Needs Trusts" and "Supplemental Needs Trusts" are terms to describe trusts designed to provide benefits to a person in a way that will preserve the public benefits that he or she is entitled to receive. The person who benefits from the trust is called the beneficiary.

Each special needs trust can be intended to protect different public benefits. Most commonly, special needs trusts are intended to permit Supplemental Security Income (SSI) and Medicaid recipients to receive some additional services or goods. Other common benefits include vocational rehabilitation, subsidized housing and food stamps. The trusts are always created as discretionary trusts, which means that money can only be paid out in the discretion of the trustee. The trustee can NEVER be the special needs person.

There are actually few rules governing Supplemental Needs Trusts (also commonly known as third-party special needs trusts). Since government benefits are available only to those with financial need, the most important rule is that the beneficiary should never be entitled to the money in the trust. If the trustee has complete discretion whether to make distributions for the beneficiary, the trust principal and income will usually not be counted as available to the beneficiary for purposes of obtaining government benefits.

The most important rule for special needs trusts is that the trust may not provide food, shelter, any asset which could be converted into food or shelter (including cash), or any items or services that are available from public benefit programs, to the beneficiary. In other words, the trust can provide for physical therapy, medical treatment, education, entertainment, travel, companionship, clothing, furniture and furnishings (such as a television or computer), and some utilities (like cable television and a telephone, but not electricity, gas or water). Distributions of cash to the special needs person outright are almost never permitted.

There are dozens of different ways to draft a Supplemental Needs Trust. In addition, the administration of a special needs trust can be extremely difficult. A seasoned lawyer, familiar with public benefits programs and special needs trust provisions, should always be involved in preparation of a third-party special needs trust. While many legal matters can be undertaken without a lawyer, or with a lawyer with general background, special needs trusts are complicated enough to require the services of a specialized practitioner.

Sometimes a person may be entitled to public benefits, but he or she has too many assets to qualify for those benefits. This is common for people like accident victims or disabled children who inherit money. In such cases, it is often possible and advisable to place assets into a special needs trust to gain, regain or continue eligibility for government benefits. Because the person is using their own money to fund the trust, there are numerous restrictions regarding how the money can be used.

Self-settled special needs trusts are much more complicated than their third-party equivalents. Usually (but not always), a self-settled special needs trust must comply with a federal law first enacted in 1993. That law requires that most self-settled special needs trusts actually be established by a judge, a court-appointed guardian or the parents or grandparents of the beneficiary (Social Security regulations may limit creation of trusts to the first two categories in most circumstances). In addition most self-settled special needs trusts will have to include a provision repaying state Medicaid agencies for any benefits, payable upon the death of the beneficiary.

In summary, Special Needs Trusts and Supplemental Needs Trusts are both Discretionary Trusts. A Special Needs Trust is established using funds of Special Needs Person. A Supplemental is established using funds of someone other than Special Needs Person. A Special Needs Trust requires that the government be paid back for Medicaid liens upon death of the Special Needs Person There is no government payback upon the death of Special Needs Person in a Supplemental Needs Trust.

Special Needs Trusts and/or Supplemental Needs Trusts are all part of a larger strategy to make sure a special needs person's financial and personal needs are met. For individuals who cannot afford these types of trusts, many charities, like Plan NJ, do have pooled funds to which you can contribute. These pooled funds offer you less control, but it does provide for a means of taking care of your loved one.

Special Needs Planning in NJ - Part 3 of 4

ESTATE PLANNING FOR A SPECIAL NEEDS CHILD

In Part III of this Series, I want to discuss estate planning issues for parents of a special needs child.

A typical estate plan for parents without a special needs child includes:

1. Will;
2. Financial Power Of Attorney;
3. Health Care Power of Attorney;
4. Advanced Health Care Directive; and
5. Naming Beneficiaries of Retirement Plans.

The parent of a special needs child must also do everything possible to avoid giving money outright to the Special Needs Child. This includes arranging for care and financial resources for the Special Needs Child.

In order to do everything possible to avoid giving money outright to the Special Needs Child, there are certain steps that can be taken:

1) Setting up a special trust for the Special Needs Child that will not be counted against the child's income for purposes of eligibility for government programs;
2) Redoing beneficiary designation notices on life insurance contracts and retirement plans; and
3) Telling family members to either leave money to a special needs trust for the child or specifically exclude the Special Needs Child from their Wills.

There are also specific arrangements that need to be made to ensure that your special needs child is cared for after your passing. This includes:

1) Arranging for a guardian to be named for the Special Needs Child;
2) Arranging for government services (SSI, SSDI, Medicaid, etc.); and
3) Arranging for living arrangements for the child.

Parents of special needs children always have a lot to deal with, but much of this planning should be done shortly after you find out that you have a child with special needs. Most importantly, life insurance planning should be done as soon as possible. If you wait too long, you may no longer qualify for insurance - and special needs parents, more than most, need to guarantee that money will be there after they pass.

Special Needs Planning in NJ - Part 2 of 4

Guardianship

In Part II of this Series, I want to discuss why formal guardianship is important and how to go about being recognized as the legal guardian of a special needs individual.

Until the person turns 18, a parent can legally make decisions for the child. However, once a person turns age 18, he or she is an adult. As an adult, a person is entitled, and in fact obligated, to make his or her own decisions. If that person needs help making his or her own decisions, but is still competent, that person can execute a Power of Attorney.

If the person is not competent to make their own decisions, then another person can only have the legal authority to act on behalf of the incapacitated person if a court appoints them as Guardian.

The Guardian can:
1) make health care decisions for the child;
2) handle the finances of the child;
3) enter into contracts on behalf of the child;
4) deal with government agencies on behalf of the child; and
5) make decisions regarding living arrangements.

What is the process for naming a guardian?

Step 1: Determine if there is a need for a Guardianship, or if there is a better alternative (such as a Power of Attorney).

Step 2: Meet with an attorney to discuss all the information needed to help the attorney file any legal paperwork on your behalf. (E.g. Who will be the guardian, who would be a good backup guardian, what is the disability of the child, what are the living arrangements and needs of the child, who are the doctors, caregivers, does the child have any money in his/her name, etc.)

Step 3: Get the doctors to sign affidavits confirming child's inability to handle his or her own affairs.

Step 4: File the paperwork with the Court to have the child declared an incapacitated person and have the Court order an attorney be appointed for the child.

Step 5: Work with the Court appointed attorney to make sure that they have the information they need to file a report with the Court. The attorney for the child will need to interview the child and the proposed guardians.

Step 6: The court appointed attorney will need to file a report with the court either recommending guardianship, limited guardianship or that no guardian be appointed.

Step 7: The Judge will then rule on the matter.

If the guardianship is uncontested, the process usually takes about two months and can cost about $3,000 to $6,000. If the guardianship is contested by either the child or another person who wishes to act as guardian, the costs can become quite high. Accordingly, it is usually best to make sure that the child and immediate family members are in agreement with the guardianship plans.

Special Needs Planning in NJ - Part 1 of 4

PART I - GOVERNMENT BENEFITS

Many parents of a special needs child have an overwhelming concern: How (and by whom) will their child be taken care of when I die? In this series, I would like to explore the options that exist to ensure that your child will be provided for.

In order to understand the planning options available to your child, you first need to understand the government benefits that might be available to your child. There are 5 types of government benefits commonly available:

1. Supplemental Security Income (SSI) – provides money for low-income individuals who are disabled, blind or elderly and have few assets. SSI eligibility rules form the basis for most other government program rules, and so become the central focus for much special needs trust planning and administration. You must live in the United States or the Northern Mariana Islands to get SSI. Non-citizen residents may be able to get SSI. Once a person qualifies for SSI, he or she is automatically eligible for Medicaid in New Jersey and most other states.

To qualify you must have little or no income and few resources - the value of the things you own must be less than $2,000 if you are single or less than $3,000 if you are married. The value of your home does not count. Usually, the value of your car does not count. And the value of certain other resources, such as a burial plot, may not count either.

To get SSI, you also must apply for any other cash benefits you may be able to get.

The amount a person is entitled to receive in 2009 is:

Person living alone or with others in own household $ 705.25
Person living with spouse who is not eligible for SSI $ 1,018.36
Person living in someone else's household and receiving
support and maintenance $ 493.65
Person living in licensed residential health care facility $ 884.05
Person living in public general hospital or Medicaid
approved long-term health facility $ 40.00
Couple living alone or with others in own household $ 1,036.36
Couple living in someone else's household and receiving
support and maintenance $ 767.09
Couple living in licensed residential health care facility $ 1,730.36

The above includes both federal and state payments.
The benefit is reduced dollar for dollar for any other income the beneficiary may receive. This means that once an SSI beneficiary's income reaches a certain level, his or her SSI benefit will terminate.

2. Social Security Disability Income (SSDI) - provides money for individuals with a disability who qualify for Social Security based upon their own work history or the work history of such person's parents.

The SSDI program pays benefits to adults who have a disability that began before they became 22 years old. The government considers this SSDI benefit as a “child’s” benefit because it is paid on a parent’s Social Security earnings record. For a disabled adult to be entitled to this “child” benefit, one of his or her parents:

• Must be receiving Social Security retirement or disability benefits; or
• Must have died and have worked long enough under Social Security.

SSI v. SSDI

a. SSI is a needs based program and SSDI is an entitlement program. There is no “means” test for SSDI eligibility.

b. SSDI can be a much higher income level than SSI, and with no payback.

c. Under both SSI and SSDI, the child must not be doing any "substantial" work, and must have a medical condition that has lasted or is expected either to last for at least 12 months or to result in death.

d. In order to qualify for SSI, individuals must first apply for SSDI if eligible as SSI is a last benefit of last resort. A person switching to SSDI from SSI can still qualify for Medicaid.

3. Medicaid - is a benefit program available to low-income individuals which makes payments directly to health care providers for medical needs over and above what Medicare will pay. The largest health and long term care program operated and funded by the government – in this case, the federal government. The fixed monthly income cap for Medicaid in 2009 is $2,022.

4. Medicare - is a federal program that makes payments directly to hospitals, doctors and drug companies. People can qualify for benefits if they are 65 and over (and are entitled to receive Social Security benefits, whether or not they have actually retired) and those who have been receiving SSDI for at least two years.

Part A - Covers most medically necessary hospital, skilled nursing facility, home health and hospice care.

Part B - Covers most medically necessary doctors' services, preventative care, durable medical equipment, hospital outpatient services, laboratory tests, x-rays, mental health care, home health care and ambulance services. (There is a monthly premium for Part B based upon a person's income.)

Part D - Covers prescription drugs.

Medicaid v. Medicare

Medicaid differs from Medicare in three important ways:

1) Medicaid is run by state governments (though partially funded by federal payments);

2) it is available to those who meet financial eligibility requirements rather than being based on the age of the recipient, and

3) it covers all necessary medical care (though it is easy to argue that Medicaid’s definition of “necessary” care is too narrow).

Because Medicaid is a “means tested” health care program and Medicare covers a smaller portion of long-term care costs, maintaining continuous Medicaid availability is often the central focus of special needs trust administration.

5. SCHIP - State Children's Health Insurance Program. This program has higher income eligibility limits and provides health insurance for many who earn too much to qualify for other programs.