People sometimes hear bits and pieces about certain aspects of the estate planning process, and they come away with misconceptions that are built on kernels of truth. This will sometimes enter the picture when it comes to the interpretation of Medicaid estate recovery.
In this post, we will look at the subject as it applies to assets that remain in a special needs trust.
Government Benefit Eligibility
Most Americans get health insurance through their jobs, but many people with disabilities are not employed, so this is not an option. They have limited resources because of their lack of earning power, so they can qualify for Medicaid as a source of health insurance.
Supplemental Security Income (SSI) is self-explanatory. It provides limited income for people that are unable to work because of their disabilities.
Once eligibility has been granted, eligibility for these benefits is not necessarily permanent. It is based on financial need, so an improvement in financial status can negatively impact the eligibility status.
Special Needs Trusts
With the above in mind, you would not want to leave a direct inheritance to a person with a disability that is relying on these government benefits. If someone that is in this position receives a windfall, their eligibility would be lost if they maintain direct ownership of the assets.
However, assets that belong to a benefit recipient could be conveyed into a special needs or supplemental needs trust.
A trustee would be named when the trust is being established. It can be a family member or someone else that the beneficiary knows personally, but there is another option. Professional fiduciaries like trust companies offer trustee services, and this can sometimes be the right choice.
Under the rules of these government programs, the trustee would be able to use assets in the trust to provide many different goods and services for the beneficiary. Generally speaking, the only things that are out of bounds are distributions that are used to pay for food and shelter.
This being stated, even if the trust assets are used to cover these necessities, SSI would not be completely lost. There would be a reduction in the benefit that is received, but the reduction cannot exceed one third of the total benefit.
Some of the purchases that are completely approved are vacations, a companion, electronic equipment, tuition and training, recreation expenses, and medical and dental treatments not covered by Medicaid.
The trust can also purchase a place of residence, and this would not be viewed as a violation of the shelter provision because the beneficiary would be using property that is owned by the trust.
It is also possible for a third-party to establish and fund a supplemental needs trust for the benefit of a person with a disability, and the same general parameters would apply.
Medicaid Estate Recovery
Now that we have shared the necessary background information, we can get to the point of this post. Medicaid is required to seek reimbursement from the estates of beneficiaries after they pass away.
When the funding comes from the beneficiary, it is a first-party special needs trust, and the remainder that is left in the trust would be available to Medicaid during the recovery phase.
On the other hand, assets in a third-party trust are protected. They would be transferred to a successor beneficiary that is named when the trust is being established.
We Are Here to Help!
As you can see, there are solutions that can be implemented to address out-of-the-ordinary estate planning situations. There is no universal approach that is right for everyone, and this is why you should discuss your options with a Los Angeles estate planning attorney.
If you are ready to do just that, you can schedule a consultation if you call us at 310-337-7696. There is also a contact form on this website you can use if you would prefer to send us a message.