Death Benefits Left to Someone with a Disability? What Happens?

Caregivers routinely name their dependents with special needs as beneficiaries of life insurance and annuity contracts and distribute money in wills to surviving “issue” without understanding how these payments will impact government benefit eligibility. Inheritances and death benefits distributed to someone with a disability may or may not cause the loss of government benefits depending on the nature of the benefit program.  Various government programs available to them will be discussed below, as well as corrective actions that can be taken to preserve government benefit eligibility.

Supplemental Security Income (SSI) is a needs based program available to people with disabilities. When a recipient of SSI receives a death benefit distribution, the surviving caregiver is often shocked when the Social Security Administration audits their financial situation and terminates their SSI monthly payments and valuable corresponding Medicaid insurance benefits to his or her dependent. SSI has very strict asset limitations and only allows their recipients to keep up to $2,000 in assets. A death claim payment can cause the immediate loss of these benefits, until the payment is spent down below the $2,000 SSI limit.

Social Security Disability Insurance (SSDI) payments are made to adults with disabilities who have a previous qualifying employment record and have paid taxes into the system in recent years.  It is considered an entitlement program, and Medicare benefits will follow after receiving twenty-four months of these payments.  A special needs child who is under age 22 and who is not working can obtain SSDI benefits based on his or her parents’ prior earnings.  Payments made under the SSDI program do not have asset restrictions.  However, payments may be reduced if too many family members receive benefit payments and exceed the family maximum.

What steps can a caregiver take to preserve SSI and Medicaid if their dependent with special needs receives a death benefit distribution, without spending down all the money? The solution is discussed below.

The 1993 Omnibus Budget and Reconciliation Act (OBRA ’93) led Congress to provide special treatment for transfers to or for the benefit of people with disabilities. Asset transfers could be made to special needs trusts by the person seeking SSI and Medicaid with no disqualification period, provided that the government agency is reimbursed for the cost of benefits provided after the death of the person for whom the trust was established.

Errors in planning for individuals with disabilities can be remedied under OBRA ’93 provisions. Yes, the trust may have payback provisions. However, money in the trust can be used on behalf of the person during his or her lifetime. This trust can certainly provide a safety net and help safeguard the immediate loss of government benefits.

Due to the complexity of federal and state laws, it may be helpful to have a specially trained professional to work with you, your attorney and other advisors when planning for the future of your dependent with special needs.

MetLife does not provide tax or legal advice. We will work with you and your tax and legal advisers to help you select appropriate product solutions to suit your specific needs and circumstances.

Metropolitan Life Insurance Company, 200 Park Avenue, New York, NY 10166.

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