What Should You Do If A Disabled Adult Child Receives An Inheritance?

If you're the parent of an adult with a developmental disability that requires you to manage his or her financial affairs, you may depend on federal disability benefits to help keep your child housed, fed, and adequately cared for -- either at your home or at a skilled care facility. When your child receives a monetary inheritance from a deceased relative or other sudden financial windfall, you may be excited at the thought of finally having another way to defray the costs you've incurred. However, in many cases, these assets could be enough to boot your child from the disability rolls and prevent the further receipt of benefits. Read on to learn more about how an inheritance could affect your adult child's ability to receive disability benefits, as well as what you can do to financially protect both yourself and your child. 

Why is it important to keep substantial assets unavailable to your child?

In most cases, individuals with lifetime developmental disabilities (like Down Syndrome, Williams Syndrome, and other chromosomal abnormalities) receive Supplemental Security Income (SSI), rather than Social Security Disability (SSD). SSI is designed for those who are unable to hold down paid work and have not earned enough money or paid enough Social Security taxes to qualify for SSD or Social Security retirement. As these funds aren't based on earnings, they're designed to go only to those who need a financial safety net and have no assets of their own. In fact, to qualify for SSI, your child will be prohibited from owning more than $2,000 in countable resources. This low asset level will also help your child qualify for Medicaid, which should cover nearly all of his or her medical needs.

This low asset limit can mean that even a small inheritance is enough to boot your child from the disability rolls, limiting future Medicaid eligibility or potentially even interfering with a group home placement. In some cases, the state may seize these funds to help reimburse the Medicaid expenses they've paid out on your child's behalf, and your child could again be left with nothing. However, there may be a way to preserve your child's benefits without disclaiming his or her inheritance.

How can you help your child continue to maintain benefit eligibility after receiving an inheritance? 

If the amount of money your child is to receive is fairly substantial -- several times the asset limit or more -- it may be worth your while to talk to an attorney, such as Horn & Kelley, PC Attorneys at Law, about setting up a special needs trust for your child's benefit. These trusts can be used to help shelter inheritances and other lump sums from countable assets while still using the funds for your child's benefit. Because a special needs trust keeps these funds inaccessible from your child except through the trustee (at his or her discretion), your child isn't considered the "owner" of funds for SSI purposes. You or the trustee will then be able to periodically use this money to treat your child to new clothes, haircuts, trips, or other fun excursions that wouldn't otherwise be available.

However, if the amount received is less substantial, you may be able to help your child quickly spend down these funds on needed items to regain eligibility for SSI benefits. During the months your child's assets are above the countable limit, your child may be required to repay any SSI benefits received for that month, but will continue to remain SSI eligible once the assets are gone. In the meantime, you can use the funds to purchase items like a wheelchair, special mattress, or even special orthotic shoes.