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.  The parents must report rental income on their income tax return which may increase the income taxes that they will pay, and it also makes the tax return preparation process more burdensome.  Charging rent of at least as much as the government expects to be spent for housing and food expenses from each SSI check is sufficient. In 2019, that amount is $277.

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 a relative provides 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 advisor 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 legal advice, tax advice, personalized investment advice, or financial planning advice from Oak Wealth Advisors LLC. To the extent that a reader has any questions regarding the applicability of the information discussed above to their individual situation, they are encouraged to consult Oak Wealth Advisors LLC.