There are many different ways to facilitate asset transfers to the people that you love, and the optimal strategy will depend upon the circumstances. Your position financially, your family dynamic, your intentions, and the nature of your assets can all enter the picture. On the other end of the spectrum, the life situation of each respective inheritor should be taken into account as well.
If you have someone with a disability on your inheritance list, special needs planning can be necessary, because there are some intricacies to address with regard to government benefits. Many people that have special needs rely on Medi-Cal as a source of health insurance. This is a need-based program, so applicants cannot gain eligibility if they have countable assets that exceed $2000 in value.
As a result, if you were to leave a sizable, direct, lump sum inheritance to an heir that is relying on Medi-Cal coverage, eligibility could be forfeited until the assets were utilized to pay for health care out-of-pocket. (Under these circumstance, there is a possible solution that we will touch upon in another section, but it comes with a big downside.)
There is another need-based government program that can be lost as well which is called Supplemental Security Income or SSI. As the name would indicate, this safety net provides a modest source of ongoing income for individuals that are not in a position to earn money on their own.
Third Party Special Needs Trusts
As a response to the above dynamic, you could work with our firm to create a third-party special needs trust. As the person establishing and funding the trust, you would be called the grantor, and you would name a trustee to administer the trust. You can act as the trustee, or you can name an individual that you know personally to assume the role.
Another option would be the engagement of a professional fiduciary like a bank or a trust company. Many people will prefer to use an experienced, licensed professional to make sure that all of the necessary rules and regulations are followed, and this is key when it comes to a special needs trust.
Supplemental Security Income and Medi-Cal will not cover everything that the individual in question may want or need. Under state and federal laws, the trustee that is administering a third-party special needs trust can utilize assets in the trust to satisfy some of these unmet needs. They are referred to as “supplemental needs” in this context, and for this reason, special needs trusts are also called supplemental needs trusts.
The trustee can never give any assets directly to be beneficiary. However, the trustee is allowed to use assets in the trust to pay for many different types of goods and services from third parties that will enhance the life of the beneficiary. These would include educational expenses, medical, dental, and psychological services that are not covered by the Medi-Cal program, one motor vehicle, transportation costs, elective surgery, non-grocery food items, fitness equipment, computers, etc.
Under existing laws, the Medi-Cal program must seek reimbursement for expenditures from the estates of recipients. However, because of the legal structure, Medi-Cal has no ability to go after assets that may remain in a third-party special needs trust after the death of the beneficiary.
First Party or Self-Settled Special Needs Trusts
A person with a disability that is relying on Medi-Cal and SSI that comes into some money from a personal injury settlement or some other source may have some recourse. As long as the beneficiary is under 65 and disabled, a parent, a grandparent, a guardian, or a court could establish a first party special needs trust with funds that are the property of the benefit recipient.
There are strict rules with regard to the expenditures that are allowed, and depending on state laws, prior approval will often be necessary. Plus, after the recipient passes away, the state would seek reimbursement from assets that remain in the trust.
Reserve Your Seminar Seat Today!
If you would like to learn more about special needs planning and other important estate planning matters, attend one of our upcoming seminars. There is no charge, but we ask that you visit our seminar page to register in advance so that we can reserve your seat, because space is limited.
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