There is no one-size-fits-all estate plan, because each situation is different. Multiple asset transfer methods are available, and you may not want to provide for every person on your inheritance list in the same manner.
With this in mind, we will look at inheritance planning for people with disabilities in this post.
Need-Based Government Benefits
Most people with health insurance receive the coverage through their employers, but many people with disabilities are not part of the workforce. Obviously, they need health insurance, and there is a solution in the form of Medicaid.
Individuals with disabilities who qualify for Medicaid also receive Supplemental Security Income (SSI). Eligibility for these benefits is based on financial need, so an inheritance can cause a loss of eligibility. This is why you should implement a special needs planning strategy if you want to provide for a loved one that is relying on these programs.
Supplemental Needs Trust
The supplemental needs trust is the estate planning tool that can be used to address this type of situation. You establish and fund the trust, and the person that you want to help would be the beneficiary. In the trust declaration, you name a trustee to administer the trust.
Since we are looking at these trusts from an estate planning perspective, you can name someone you know personally to serve as trustee. Of course, anticipated longevity of both parties would be a factor, and there are other considerations.
As an alternative, you can use a professional fiduciary to act as the trustee. If you choose this option, you can be sure that the trust will be administered properly, and there will be no longevity concerns.
Medicaid does not cover every dental and medical procedure the someone may want, and the average Supplemental Security Income payout in 2021 is just $794 a month. Clearly, these programs provide the bare minimum, so additional support is necessary to maintain a reasonable standard of living.
Under the rules of the benefit programs, the trustee of a supplemental needs trust can use the resources to make the beneficiary more comfortable in many ways. These are just some of the goods and services that can be provided:
- Rehabilitation and therapeutic services
- Medical and dental procedures that are not covered by Medicaid
- Education and instruction
- Travel
- Companionship
- Computers and other electronic equipment
- Insurance
In addition to the types of purchases that can be made by the trustee with assets in the trust, there are some resources that are simply not countable for Medicaid eligibility purposes. This is true even if someone does not have a trust.
These would include a home and a motor vehicle, including especially a modified vehicle that would suit the needs of a person with a disability. The trustee could utilize assets in the trust to purchase these non-countable assets.
Medicaid Estate Recovery
If you establish and fund a trust that is going to benefit someone else, it would be a third party supplemental needs trust. When you are drawing up the trust, you would name a successor beneficiary to assume the role after the death of the initial beneficiary. Medicaid would not be able to go after the assets that remain in the trust during recovery efforts.
A first party or self-settled supplemental needs trust is established with funds that are the property of the beneficiary. The rules would be the same with regard to the ability of the trustee to use the assets to improve the beneficiary’s quality of life without impacting benefit eligibility. However, Medicaid will seek reimbursement after the death of the beneficiary.
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