There are those that see estate planning as a one-way street. They think that it’s all about deciding “who gets what” as it were. When that is determined, everyone can receive their inheritances in the same manner, or so this line of thinking goes.
You can adopt this perspective, but it would be shortsighted to say the least. To devise a well-constructed estate plan, you should definitely consider the life situation of each person that will be receiving a bequest from you. If you do not act in a fully informed manner, unintended consequences can have a negative impact.
People With Disabilities
A good example of the dynamic that we are highlighting is the matter of providing resources for someone with a disability when you are planning your estate. Most people with special needs rely on Medicaid as a source of health insurance, and obviously, it is absolutely essential for these individuals.
When it comes to income, a significant percentage of folks with physical or mental challenges are not in a position to earn much money in the working world. To account for this, there is a government program called Supplemental Security Income (SSI). The name is more or less self-explanatory; SSI provides a modest monthly benefit to help make ends meet.
These are need-based programs, so people that qualify have to prove that they have very limited financial resources in their own names. A windfall of money from an inheritance or from some other source could potentially cause a loss of benefits.
First Party Special Needs Trusts
To prevent any interruption in benefit eligibility, someone that receives a bequest or a personal injury settlement would have recourse. A parent, a grandparent, a legal guardian, or a court could establish a first party or self-settled special needs trust on behalf of the individual in question.
After the trust has been funded with the benefit recipient’s assets, the trustee would be able to use the funds to make the beneficiary/grantor more comfortable in many ways. It should be noted that the person with special needs would not be able to touch the funds directly, and it would be an irrevocable trust that could not be changed or dissolved in the future.
All of the above is positive, but there is a very significant downside. Medicaid is required to seek reimbursement from the estates of people that were enrolled in the program during their lives. In most cases, they would not have anything left, because you can’t qualify if you have significant resources.
Assets that remain in a self-settled special needs trust would be one of the exceptions. Medicaid would be able to attach the remaining funds during reimbursement efforts, and this is a major drawback.
Third Party Special Needs Trusts
We had to explain the nuance of first party special needs trusts to give you a complete picture with regard to the importance of special needs planning. You could potentially give a benefit recipient a direct inheritance, but as you can see, it is likely that a lot of it would eventually wind up going to Medicaid.
If you establish a third-party special needs trust with your own money for the benefit of a beneficiary with a disability, you would name a successor beneficiary. After the passing of the first beneficiary, the successor would assume ownership of any remainder that is left in the trust. Medicaid would have no access to these resources.
Attend a Free Seminar!
We are excited about a series of informative seminars that we are holding in the near future. A great deal of very useful information will be conveyed in a concise and fully understandable manner, so you should certainly carve out some time to attend the session that fits into your schedule.
You don’t have to reach into your wallet to reserve your seat, because these sessions are being offered free of charge. To get all the details and registration information, visit our seminar schedule page.