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Subminimum Wage and Special Needs Trusts

| Apr 20, 2019 | Estate Planning, Legislation |

A provision in the Fair Labor Standards Act allows employers to pay disabled individuals less than the federal minimum wage by obtaining a 14(c) certificate from the Department of Labor. As of March 2019, the federal minimum wage is $7.25 an hour.

Part of the argument in favor of the subminimum wage for disabled workers is that these individuals are paid “based upon their productivity level compared to that of someone without a disability” [Disability Scoop, February 5, 2019]. The Department of Labor states on their website that “employment at less than the minimum wage is designed to prevent the loss of employment opportunities for these individuals.”

Opponents of the subminimum wage argue that this system exploits disabled workers and leaves more individuals with disabilities struggling financially, to a greater degree than non-disabled workers. Note that not all disabled individuals are eligible to receive certain state or federal benefits, and many may be relying on family members or Social Security income to pay bills. Currently, for many disabled workers receiving Social Security income, that benefit is decreased commensurate with the amount of pay they receive from a job.

The bill, introduced on January 29, 2019 by Senator Bob Casey (D-Pa.) and Representative Bobby Scott (D-Va.) and called the Transformation to Competitive Employment Act (S. 260), would “…assist employers providing employment under special certificates issued under section 14(c) of the Fair Labor Standards Act of 1938 to transform their business and program models, to support individuals with disabilities to transition to competitive integrated employment, to phase out the use of such special certificates…” Grants and other assistance would then be made available to help businesses make the transition.

A different bill, also introduced on January 29, 2019 by Sen. Bob Casey and called the Disability Employment Incentive Act (S. 255), aims to “include individuals receiving Social Security Disability Insurance benefits under the work opportunity credit, increase the work opportunity credit for vocational rehabilitation referrals, qualified SSI recipients, and qualified SSDI recipients, expand the disabled access credit, and enhance the deduction for expenditures to remove architectural and transportation barriers to the handicapped and elderly.” In essence, it would increase three tax credits available to employers who make their businesses more accessible or who hire disabled workers.

Special Needs Trusts Create Additional Protection

Regardless of what happens with the particular bills listed above, there are steps that relatives can take to assist or protect assets for their disabled loved one. Families can create additional protections for disabled relatives by utilizing a special needs trust (SNT). These trusts are part of the estate planning process and can be used for a variety of reasons, including protections for a minor’s finances; spendthrift provisions; a child is providing for an aging parent; and care for a disabled child, spouse, parent, or other relative.

By creating an SNT, it’s possible to not only provide for a disabled relative or an individual with special needs after your passing, but specific language in the trust allows you to provide for that person without risking any public benefits they may be entitled to receive. This means you can give them a safety net and additional funds to enhance their life without risking the Social Security, Medicare or Medicaid, or disability benefits they may already be receiving.

An SNT also allows you to identify a trustworthy individual who will protect the trust and distribute assets in the way you intend, which is typically to support the beneficiary in living a full and happy life.

In addition, establishing an SNT allows for others to contribute to the care and wellbeing of the beneficiary. For example, a grandparent may direct assets to go into an SNT for a grandchild, but the parents can also contribute to the same SNT and extend the life of the assets in the trust for the care of their child.