Administrative Burdens When A Family Member With Special Needs Lives With Parents Or Siblings
In a perfect world, we would all live interdependently in safe houses in our desired neighborhoods, feel integrated with the community, and be close to our loved ones. Achieving this ideal housing situation is difficult for anyone, but for an individual with special needs, the challenge is magnified by the complications of maintaining government benefits, finding quality support personnel, accessing transportation, and locating a community with compassionate neighbors.
As a child completes the transition years, many families feel that maintaining the status quo by having their young adult with special needs continue to live at home is their only option. Most therapists and psychiatrists, however, recommend that those who are able live apart from their family. This goal is rarely achieved.
Assuming your loved one with special needs is living with you and he or she is either currently receiving or intends to begin receiving government benefits, proper planning is essential. While it may seem inappropriate and administratively burdensome, from an administrative perspective, the family member with special needs should be treated like a tenant and not a family member. All aspects of the living arrangement and the services provided by family members to the individual with special needs should be covered by written agreements.
To the extent the adult with special needs is earning income and/or receiving government benefits, he or she will likely need to spend down the money received on a monthly basis to remain eligible for future benefits. Some parents choose to charge rent. While simple to do, charging rent creates some unintended consequences. First, the parents must recognize rental income on their income tax return which not only increases the income taxes that they will pay, but it also makes the tax return preparation process more burdensome. Second, the amount of rent paid is included in the government’s calculations of need and may reduce future benefits. There is a smarter alternative.
Rather than charging rent, parents should require that their adult child pay their fair share of living expenses. Having the adult child pay their share of the family’s gas, electric, cable, telephone, and water bills is a superior approach for a couple of reasons.
First, in many cases, their share of these expenses will completely absorb their monthly earnings and benefits which will maintain their eligibility for maximum benefits. Second, while this approach requires more detailed record-keeping, it does not add to the family’s income tax or tax preparation burden.
Another need for written documentation arises if a parent or family member provides care and gets compensated for doing so. Prior to the payments starting, there should be a written personal care agreement in place that lists the types of services to be provided and the compensation to be paid for the services. Failure to establish a formal arrangement can have negative repercussions. Without having the agreement in writing, the payments will likely be viewed as gifts which are deemed to be improper uses of resources and can lead to loss of benefits. While the family member who gets paid will have to include the payments as income for tax purposes, the after-tax result for the family is still usually far superior to the loss of benefits. In addition, getting paid can delay or eliminate the resentment that often arises when providing unpaid care for a family member.
Living arrangements and care giving require a great deal of planning. Even the best intentions of family members can backfire. While having an adult child live at home while parents and/or siblings provide care can be a cost-effective approach, failure to document the arrangement and payments can lead to negative results. Consulting with a special needs attorney to ensure that your planning for your adult with special needs will not jeopardize their benefits is essential.
This update is intended for the use of Oak Wealth Advisors LLC clients. This update should not be viewed as personalized investment or financial planning advice from Oak Wealth Advisors LLC. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to their individual situation, they are encouraged to consult Oak Wealth Advisors LLC. Past performance does not guarantee future results and all investments should be scrutinized before being implemented in a portfolio.