Recently, I wrote an article about hiring your children in your business. In that post, I showed business owners that you can hire and pay your children (ages 0 to 18) as long as you follow certain guidelines. Yet, what if YOUR child has special needs? What if they have disabilities? Yes, hiring your special needs child is possible, but there are a few unique considerations that need to be addressed.
Special thanks to my Podcast interviewee and contributor, Jonathan Peyton of Horizon Ridge Wealth Management in Ashburn, VA. Johnathan is a renowned CERTIFIED FINANCIAL PLANNER™ who specializes in wealth management and special needs planning.
As long as they are capable of performing a task within your business, you can definitely make them an employee. Yet, if you hire your special needs child, you want to do it in such a way that it doesn’t harm them. You don’t want them to lose government benefits because they are receiving an income from your business.
And you want to do it in a way that is not detrimental to your business. Like other family members working for you, you must hire them to do actual work. Obviously, their job needs to be age and ability-appropriate. Perhaps they can water the plants or shred documents. Maybe they can run errands or greet customers. So, if they can work, they can work for you!
Not only can their work be helpful to your business, but it can also be helpful to them. Specifically, employment offers them two advantages:
Simply put, bringing on special needs children looks exactly like hiring any child. You can:
Things can get a little more complicated if Social Security is involved. How does earning income affect the Social Security benefits your special needs child may be receiving?
If your children are blind or disabled, they could qualify for SSI, or Supplemental Security Income from the Social Security Administration, depending on the severity of their disabilities. SSDI, or Social Security Disability Insurance, pays benefits to blind or disabled adults (it is also extended to the children of retired parents under the family income limit) who have worked and paid taxes throughout their lives. Therefore, more than likely, if you have special needs children between the ages of 0 to 18, they are receiving SSI rather than SSDI.
If your child is receiving SSI benefits in 2019, Social Security provides SUPPLEMENTAL income to the tune of $771.00 per month. However, to encourage SSI beneficiaries to work, Social Security limits how much your child can receive as income when determining how much SUPPLEMENTAL income it will pay. Yet, Social Security does not “count” all income beneficiaries receive. For instance, Social Security does not count the first $20 of most unearned income the child receives in a month, nor does it count food stamp benefits or public benefits based on needs. Additionally, Social Security does not count the first $65 of earned income.
Let’s go through an example:
Let’s assume your child makes $1,600 a month as an employee of your business. Since the first $20 of unearned income (rebates, tax-free benefits, etc.) and $65 of earned income are not “countable” towards SSI benefits, countable income starts at $1,515. Social Security then divides the remaining income in half and counts one half of the income. This leaves $757.50 ($1,515 divided by 2 = $757.50). Finally, Social Security subtracts $757.50 from the eligible $771 per month benefit to arrive at what, if any, they will pay. In this example, those eligible to receive SSI benefits could receive, from SSA, $13.50 per month ($771 – $757.50 = $13.50).
It should be noted that this example only applies to those applying for SSI benefits. Income rules are different for those applying for SSDI. If done correctly you could pay your special needs children an income without completely disqualifying them from Social Security benefits. A qualified Certified Financial Planner (CFP), Chartered Special Needs Consultant (ChSNC), Certified Public Accountant (CPA), or tax attorney can help you navigate the technical details of this strategy.
Another way of shifting money to your special needs children via your business is to shift income producing assets out of the business into a special type of trust that can benefit your children today and in the future.
Generally, utilizing trusts is a way for you to pass your assets to a beneficiary of your choice with the help of a trustee. Trusts can be revocable (able to be changed or canceled by the creator ) or irrevocable (unable to be changed or canceled by the creator). Yet, more importantly, trusts can help you minimize taxes for you and your beneficiaries, they can protect your assets, and they can help your beneficiaries avoid the probate process upon your death.
Unfortunately, many parents do not work with the appropriate professional advisors, and they transfer money to their children through traditional revocable or irrevocable trusts. Once your children take ownership of one of those trusts, though, they are excluded from government benefits if the assets are greater than $2,000 (for single children). Therefore, if you have special needs children, you need to look at creating a special needs trust for them.
First, if your children earn income from working in your business, your children can transfer the money they receive into trusts they create themselves. Self-settled, special needs trusts are ones that are created by the owners – your children. However, when your children put money into the trust, they have to make the beneficiary either the state or Medicaid. Thus, upon your children’s death, the money goes to the state or to Medicaid to pay back benefits that were given to your children over time. If any money is left over, it would then be able to be transferred to another heir or beneficiary.
If a self-settled trust doesn’t sound like your cup of tea, you can open a third-party special needs trust on behalf of your children. In a third-party special needs trust, you can funnel money from your business into an irrevocable trust that removes the money from the children’s estates. Thus, the trust does not have to repay the state or Medicaid. Instead, if the child passed away, the money would seamlessly transfer to another heir or beneficiary.
Essentially, which trust you choose is about control. Where do you want the money to go – to your children or to a trustee on behalf of your children? Much of that will depend on your children’s ability levels. It may also depend on how much money you think is needed to take care of your special needs child.
I cannot emphasize one point enough. You MUST talk to professional financial planners, estate planners, tax advisors, AND attorneys. Although Jonathan and I are CFPs®, we do not know your particular circumstances, nor are we tax advisors or attorneys. We know that you want to take care of your children, and if they have disabilities, you want to ensure they are taken care of throughout your life and after your death. Therefore, if you are considering hiring your special needs child to your business use this information as a starting point, not as tax or Social Security advice.