When you plan your estate, it is important to understand that there are many different ways to get assets into the hands of others after you are gone. The ideal choice will depend upon your assets and your intentions, but the life situation of each respective inheritor should also be taken into consideration. With this in mind, let’s take a look at the value of the legal device called a special needs trust.
Obviously, health care insurance is important for everyone, but it is absolutely 100% essential for individuals with disabilities that require ongoing care and treatment throughout their lives. Expenses can reach well into the seven figures in many instances, and Medi-Cal is the widely embraced solution.
You are probably aware of the fact that this is a government health insurance program for people with very limited monetary resources. It is called Medicaid around the country, but we have Medi-Cal here in California. Because it is a need-based program, applicants cannot qualify if they have more than $2000 in countable assets.
We should point out the fact that all property is not considered to be countable, but that is a subject for a future blog post.
There is another government program that is part of the safety net for Americans with disabilities called Supplemental Security Income (SSI). As the name would indicate, SSI provides a basic source of income for people that cannot earn a lot on their own. It’s not much (at the time of this writing in 2019, the maximum monthly benefit is $771), but every little bit helps.
Once a person has been deemed eligible for these programs, access is not permanently etched in stone. A period of ineligibility can be imposed if a benefit recipient was to receive an inheritance or some other windfall, like a personal injury settlement.
This is something to keep in mind if you want to provide for a loved one that is relying on Medi-Cal and/or Supplemental Security Income. If you were to come into our office to discuss the matter with an attorney, you would learn about the value of a special needs trust to address the situation.
To implement this strategy, you fund the trust and you name a trustee to act as the administrator. It can be someone that you know personally, and you also have the option of using a corporate trustee like a trust company or the trust department of a bank.
Your loved one with a disability would be the beneficiary of the trust. As long as the trustee follows all the rules of the program, assets in the trust could be used to make the beneficiary more comfortable in countless different ways. These are considered to be “supplemental needs,” so the trust is alternately referred to as a supplemental needs trust.
The resources would be put to good use, and benefit eligibility would not be negatively impacted.
Prevent Estate Recovery
For the sake of simplicity, we conveniently omitted a relevant fact about the Medi-Cal rules surrounding supplemental needs trusts. If a person with a disability does come into money for some reason, a court, a guardian, a parent, or a grandparent could use the resources to establish a special needs trust.
This would be a first-party or self-settled special needs trust, because the resources would be the property of the party that was actually benefiting from the trust. The parameters would be the same with regard to the trustee’s ability to use assets to enhance the well-being of the grantor.
However, the Medi-Cal program would be required to seek reimbursement from the estate of the grantor/beneficiary after his or her death. They would be able to attach assets that remain in the trust after the passing of the individual in question.
If you establish a special needs trust with your own funds, it would be a third-party trust. Under program regulations, the remainder would be out of the reach of Medi-Cal during recovery efforts. This is one of the reasons why you would not want to give a direct inheritance to the person with special needs.
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We are here to help if you would like to discuss special needs planning or any other estate planning or elder law matter with a licensed attorney. You can send us a message to request a consultation appointment, and we can be reached by phone at 310-337-7696.
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