Having enough financial resources to support someone with special needs is an ongoing worry for many families. If resources are short, one increasingly popular option is to set up a crowdfunding campaign through such outlets as GoFundMe or Kickstarter. While this can be a quick and effective way of raising money, crowdfunding could also have a negative impact on the beneficiary’s access to government benefits like Medicaid and Supplemental Security Income (SSI). Those considering this option must be sure they understand the rules and restrictions regarding government programs and set up the fund accordingly.
If the person with special needs is receiving government benefits, he can’t have assets exceeding $2,000 in his own name. So money he receives through a crowdfunding campaign would count as unearned income and any amount over $2,000 would disqualify him from receiving SSI or Medicaid.
One can avoid this problem by setting up the campaign so that donations are paid directly into a special needs trust or ABLE account rather to an account in the beneficiary’s name. IRS regulations allow the money to be set aside for the special needs individual without compromising his eligibility for government assistance. The money is then used for qualified expenses to fund this person’s care and support.
Know the Options: ABLE vs. Special Needs Trusts
Each of these options has its pros and cons. ABLE accounts are relatively easy and cost-efficient to open, but they come with restrictions. Only the person with special needs or someone acting on her behalf (through a power of attorney) can open an ABLE account, and only if her disability first manifested before age 26. Also, ABLE accounts are limited to $15,000 in annual contributions, presenting a problem if the campaign exceeds that limit. Lastly, if the beneficiary used government assistance during her lifetime, any remaining funds in the account after her death are subject to reimbursement claims by the state Medicaid program.
While special needs trusts require an attorney’s fees and services to set up, they offer much more flexibility than ABLE accounts. There are no limits to annual contributions or overall account value. Families should note the difference between first-party and third-party special needs trusts, however. First-party trusts are still considered the property of the person with special needs and are subject to reimbursement claims from Medicaid after the beneficiary’s death. The money in third-party trusts, on the other hand, does not belong to the special needs individual in any way, though its stated purpose is to pay for that person’s care. And the state has no claim on the money after the beneficiary passes away.
Do It Right from the Start
Families considering a crowdfunding campaign should first set up a third-party special needs trust if they don’t already have one. This way, they can design the campaign so that the funds are payable directly to the trust, not to the individual with special needs. There are many crowdfunding options out there, each with its own set of rules and restrictions. So it’s important to do the proper research and make sure the fundraising platform allows contributions to go into a trust.
The Kindness of Others
Another challenge is that anyone can start a crowdfunding campaign for any purpose. This means that the special needs person may already be listed as the beneficiary of such a campaign, organized by well-meaning relatives or friends, before the immediate family has even had a chance to establish a third-party trust. In such cases, the best remedy is probably to set up a first-party trust after the fact. The money is still considered the property of the individual with special needs but it can be distributed in a tax-advantaged way for that person’s care and support.
Whether families are planning a crowdfunding campaign for a special needs relative or find themselves on the receiving end of one, they should contact their special needs planner to work out the best options for setting aside the funds.