Estate planning is a two-way street. Yes, you have to decide how you want to distribute your assets. At the same time, you should consider the unique life situation of everyone on your inheritance list.
A perfectly acceptable way to transfer assets to one person may not be right for another. This definitely enters the picture when you want to leave an inheritance to a loved one with a disability.
Need-Based Government Benefits
Many people with disabilities cannot work, so they do not have the opportunity to get health insurance through their employers. For the same reason, folks in this position often have financial need, so they can qualify for Supplemental Security Income.
Once someone qualifies for these need-based benefits, the eligibility is not necessarily permanent. A significant improvement in financial status can cause a loss of benefits. This is something to keep in mind if you have a family member with special needs on your inheritance list.
The Perfect Solution
Fortunately, there is an inheritance planning solution for people with disabilities in the form of a supplemental needs trust.
When you establish the trust, you name a trustee to act as the administrator. You can use a trust company or the trust department of a bank, or you can choose someone that you know personally. The person that you want to help out would be the beneficiary of the trust.
The government benefits do not provide everything that a recipient may want or need, and this includes some medical, dental, and therapeutic treatments.
Under the program rules, the beneficiary would not be able to touch the principal. However, the trustee would be able to use assets in the trust to satisfy these unmet needs. As long as everything is done correctly, eligibility would remain intact.
Medicaid Estate Recovery
Medicaid can attach property that remains in the estate of a person that was enrolled in the program after they pass away. Since people cannot qualify if they have significant assets, there is usually nothing in the estate to take. Of course, the situation can be much different when a supplemental needs trust has been established.
If you use your own funds to establish a trust for the benefit of someone else, it would be a third-party supplemental needs trust. When you create the trust agreement, you would name a successor beneficiary to assume the role after the death of the first beneficiary.
Medicaid would not be able to go after assets that remain in a third-party trust.
It is possible for a person with a disability to fund a supplemental needs trust with their own assets. This is often done when someone receives a personal injury settlement or judgment.
The details would be the same with regard to the ability of the trustee to use assets in the trust to make the beneficiary more comfortable in many different ways. The bad news is that Medicaid would be able to attach assets that remain in this type of trust after the death of the beneficiary.
We Are Here to Help!
If you would like to discuss special needs planning with a licensed estate planning attorney, our doors are open.
We endeavor to create lasting relationships based on respect and trust, and we sincerely care about our neighbors and their families. When you choose our firm, you will immediately recognize our sincere commitment to your well-being.