Estate planning is often looked upon as a one-way street. The idea is that the only decision that you have to make is how you are going to be distributing slices of a pie. People that adopt this perspective do not think about the life situation of each respective inheritor.
In fact, this is an important consideration, and it is well demonstrated by the fallout that can materialize when a person with a disability is receiving an inheritance.
Need-Based Government Benefits
The majority of Americans get affordable health insurance through their employers. Since many people with disabilities cannot work, this option is not available to them.
Everyone needs health insurance, but the need is even more significant for folks that are in this position. And then there is the matter of income, and this void speaks for itself.
Fortunately, there are safety nets in place. Medi-Cal is a jointly administered federal/state government health insurance program for people with very limited resources. Supplemental Security Income is a very modest but welcome source of monthly cash.
Eligibility is contingent on ongoing financial need. If a benefit recipient was to receive a sizable direct inheritance, their profile would change dramatically, and they could lose their benefits.
There Is a Solution
The above scenario is a bit disconcerting on the surface, but there is an estate planning solution in the form of a supplemental needs trust. People alternately use the term “special needs” trust to describe these devices.
If you establish this type of trust for the benefit of a loved one, you would be called the grantor of the trust. The person that you want to assist would be the beneficiary, and you would empower a trustee to act as the administrator.
When it comes to the choice of trustee, you can go in a couple of different directions. It is possible to get someone that you know personally to agree to act as the trustee.
Of course, if you are creating a trust as an estate planning tool, you have to consider the anticipated longevity of the trustee. You may not know anyone with the proper qualifications, and there are strict rules that must be followed to the letter.
The other option would be to engage a professional fiduciary like a trust company or the trust department of a bank. If you go this route, you can go forward with the knowledge that the trust will be competently administered, and there would be no succession concerns.
Medi-Cal does not cover every medical, dental, and therapeutic treatment that the beneficiary may want or need. Supplemental Security Income is extremely limited, and no one could live on these payouts comfortably.
Under the program guidelines, the trustee would be able to use assets in the trust to satisfy these unmet or supplemental needs. As long as the rules are followed correctly, benefit eligibility would not be lost.
Medi-Cal Estate Recovery
The last piece to the puzzle that you should understand is the matter of estate recovery. When a benefit recipient dies, Medi-Cal can attach assets that remain in their estate.
With the exception of a home, you cannot qualify if you have more than $2000 in your own name, so there is usually nothing to take. However, there is a shade of gray when it comes to the beneficiary of a special needs trust.
If you use your funds to establish a third-party trust, Medi-Cal could not go after the remainder. It would fall to a successor beneficiary that you would name in the trust declaration.
Sometimes a person with a disability that is enrolled in these benefit programs will receive a personal injury settlement or judgment, or they may come into money in another way. Under these circumstances, a first party supplemental needs trust could be established.
The arrangement would be the same with regard to the trustee’s ability to make the beneficiary more comfortable without impacting benefit eligibility. However, assets that remain in the trust after the passing of the beneficiary would be available to Medi-Cal during the recovery phase.
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