Page 25 - GP fall 2023

Dependent Care Flexible Spending Ac- or 21, depending upon the state they live in. Medicaid. This program helps individuals
counts (or DCFSAs) are tax-advantaged The guardian will be responsible for caring and families with disabilities pay for health
accounts that let you use pre-tax dollars to for your children; in essence, they will act costs and is the principal source of long-
pay for eligible dependent care expenses. as your child’s parent. If you do not appoint term coverage for many. This includes
A DCFSA is a pre-tax benefit account used a guardian, the court will appoint one for skilled nursing facilities and in-home care-
to pay for eligible dependent care services, you, who may or may not be to your liking. giving support (depending on the state).
such as preschool, summer day camp, be-
fore or after school programs, and child or Each U.S. state has its own guardianship Supplemental Security Income (SSI). This
adult daycare. A qualifying dependent may requirements. A family lawyer can help taxpayer-funded program is allotted to
be a child under age 13, a disabled spouse, you navigate the process in your state. No those with disabilities to help them pay
or an older parent in eldercare. DCFSAs matter what, don’t assume whom guardian- for basic needs such as food, clothing, and
can be combined with a standard FSA or an ship of your child would go to after your shelter.
HSA. DCFSAs do not impact HSA eligibil- death. Guardianship would only be neces-
ity. In general, for 2023, the maximum an- sary if your child’s other parent is also no In general, there are two types of special
nual contribution limit is $5,000 per house- longer alive or unable to care for your child needs trusts (SNTs):
hold or $2,500 if married, filing separately. sufficiently. In many states, courts have
the final say on who becomes a guardian. A first-party special needs trust, also re-
You can use the dependent care FSA to They base the decision on what’s best for ferred to as a “self-settled” trust, is estab-
lished using assets of the person with spe-
pay for eligible Pre-K childcare expenses the child and may let older children weigh cial needs. The beneficiary of the trust must
tax-free, including nursery school, pre- in. In these cases, your role as a parent is to be someone with special needs or who is
school, or similar programs below the level tell the court your wishes and any relevant disabled. The trust is actually established
of kindergarten. Expenses to attend kin- facts ahead of time. by a parent, grandparent, guardian of the
dergarten or a higher grade aren’t eligible person with special needs, or by a court;
FSA expenses, but childcare, expenses for In certain instances, a special needs trust however, it is funded using assets owned
before- or after-school care of a child in may be prudent. A special needs trust is by the beneficiary. This type of special
kindergarten or a higher grade up to age 13 a document you create to provide for a needs trust is most frequently needed when
are eligible. The care provider just can’t be beneficiary who has a disability, chronic someone with special needs (or a disabled
your spouse or another dependent child. illness, or injury and relies on government
assistance. A special needs trust helps to individual) receives a lump sum of money.
Generally speaking, high-income families improve a disabled individual’s life by in- For example, if the individual received a
will benefit more from an FSA than from creasing the longevity of funds using gov- settlement for injuries in a personal injury
the Child and Dependent Care Credit (you ernment benefits. It also pays for expenses accident or received an inheritance. With
can’t receive the full benefit from both). that are not otherwise covered by govern- a first-party trust, any assets remaining in
However, if you have two or more kids un- ment assistance. the trust upon the death of the beneficiary
der 13 and spend $6,000 or more on child must be used to pay back Medicaid (assum-
care, you may be able to partially benefit A person with a disability may be rendered ing the beneficiary was a Medicaid recipi-
from both. A potential drawback is that ineligible for Medicaid, Supplemental Se- ent). By contrast, with a third-party special
the IRS requires money contributed to a curity Income (SSI), or other public ben- needs trust, there is no need to worry about
FSA to be spent during the plan year. If the efits if they receive an inheritance or sim- repaying Medicaid.
money isn’t used, it’s forfeited. A tax pro- ply accumulate too much money in their A third-party special needs trust is estab-
fessional can help determine what’s best account. Any amount over $2,000 in assets lished by a third party with assets owned
for your situation. will negatively affect benefit eligibility.
An individual special needs trust offers a by the third party for the benefit of a per-
Planning for the care of children in case way to protect the assets of a person with son with special needs. This type of trust is
of unfortunate circumstances is one of the a disability while preserving their ability to most often established by a parent, or other
most important things parents can do. Es- receive public benefits. Funds can be dis- family member, for the benefit of a child
tate planning could mean the difference be- tributed, as needed, to pay for extra care with special needs. A third-party special
tween stability and chaos for bereaved chil- beyond what the government provides. An needs trust is funded using assets gifted
dren. The sooner a permanent or temporary individual special needs trust may offer a by the parent, grandparent, or other family
guardian is appointed in these situations, way to pay for personal care attendants, members. This type of trust must include
the more quickly the child can adjust. Wills home furnishings or modifications, out-of- specific language and must be worded such
and trusts are important because they help pocket medical or dental care, education, that the assets in the trust are actually dis-
inform your family how you want your as- recreation and vacations, transportation, tributed to a third party, such as the parent,
sets distributed when you die. An essential rehabilitation, and many other ways of im- to be used for the benefit of the individual
part of a will, if you have minor children or proving the quality of life for a person with with special needs. Because the assets held
children with special needs (regardless of a disability. in the trust are not available to the bene-
age), is to appoint a guardian. The guardian ficiary, those assets do not disqualify the
will be the person appointed to take care There are two main government benefits beneficiary from eligibility for assistance
of your children after you pass away until that putting money in a trust can preserve: programs such as Medicaid and SSI.
they reach the age of majority, which is 18
www.nysagd.org l Fall 2023 l GP 25