Child Support and the Use of a Special Needs Trust

When parents of a child with special needs decide to divorce, the use of a Special Needs Trust should carefully be investigated before finalization of the divorce decree in order to preserve the highest level of resource dependent public benefits available to the child with disabilities. Resource dependent public benefits, such as Supplemental Security Income (SSI), Medical Assistance, Waiver Programs, and MH/ID benefits, are vital to support individuals with disabilities who are not able to work due to their disabilities. Persons with disabilities who receive SSI payments in Pennsylvania automatically receive Medical Assistance benefits; thus, it is important to maintain SSI eligibility so that the person with disabilities does not lose Medical Assistance’s health insurance coverage. Special Needs Trusts allow individuals to maintain their eligibility for important benefits while preserving some limited assets for their special needs.

In divorce situations, Pennsylvania law requires that a parent financially support a child until age 18 or possibly longer, based on the significant needs of the child. Thus, child support may be ordered to continue after the child with special needs reaches 18, thereby impacting the child’s receipt of public benefits.

A child with disabilities under the age of 18 may receive SSI payments if the resources of the parents and child are under a certain amount. Once the child with disabilities reaches the age of 18, Social Security determines the child’s SSI eligibility based on the child’s own resources, which must be less than $2,000.00, and no longer considers the resources of the parents. Social Security views child support payments as In-Kind Support and Maintenance (ISM) to the child with disabilities while he is under the age of 18. Thus, the child support payment, regardless of the actual amount, will only cause a one-third reduction in the SSI benefit. By contrast, once a child with disabilities turns 18, any amount of child support received by the custodial parent or the child with disabilities will be considered unearned income to the child and will cause a dollar-for-dollar reduction in SSI benefits.

If the child with disabilities resides with his married parents after he turns 18, Social Security will consider the resources of the individual with disabilities, and not the parents’ resources, to determine SSI eligibilty. A person with disabilities residing with his parents might receive a reduction in SSI for food and shelter (ISM) provided by his parents; however, if he receives no ISM and has no additional form of income or resources, he should receive the full amount of SSI each month. By contrast, an individual with disabilities over the age of 18 with divorced parents who is residing with the custodial parent would have his SSI benefit reduced not only by ISM provided by the custodial parent, but also by any child support paid directly to the custodial parent or to the child with disabilities, as Social Security would consider the child support unearned income.

This inequity may be corrected by the use of a Self-Funded Special Needs Trust, which may hold the child support payments for the benefit of the child with disabilities. The child support payments must be irrevocably assigned to the Special Needs Trust; thus, the obligor parent must pay the child support directly into the Special Needs Trust via a property settlement agreement or by court order. Child support is then eliminated as unearned income to the child with disabilities, allowing him to receive the full payment of SSI, if otherwise eligible.

If a property settlement agreement or child support order is already in place, many agreements and orders can be amended or modified to direct child support payments to a Special Needs Trust. The creation of a Special Needs Trust involves an area of expertise not commonly possessed by family law attorneys; it is extremely important to consult with an attorney who specializes in special needs planning to make sure the interests of the child with special needs are fully addressed in the divorce process.