There are pointed estate planning approaches that can be taken when certain circumstances exist. This is why you should discuss all the possibilities with a licensed estate planning attorney before you make any assumptions.
This definitely applies to inheritance planning for people with disabilities. When you want to provide for someone with special needs, there are steps that you should take to make them more comfortable without doing any harm in the process.
Government Benefit Eligibility
A very significant percentage of people with disabilities rely on Medicaid for health insurance, and many Medicaid recipients qualify for Supplemental Security Income (SSI). These benefits are only available to people with very sparse financial resources.
Once eligibility has been granted, it is not necessarily permanent. An improvement in financial status can alter the dynamic, and benefit eligibility could be lost. This should be in the forefront of your thinking if you will be leaving a bequest to someone that is in this position.
Supplemental Needs Trust
The estate planning approach that is widely utilized to address this type of situation will revolve around a special needs or supplemental needs trust.
To implement this strategy, you establish and fund the trust, and you designate a trustee to act as the administrator. There are specific rules that must be followed to the letter, and financial acumen is required, so you should be discerning when you are choosing a trustee.
You could utilize a professional fiduciary to act as a trustee if you do not know anyone that would fit the bill. Trust companies and the trust departments of banks provide trustee services for a fee, and this can be the right choice in some cases.
Medicaid does not cover every dental, medical, and therapeutic procedure, and the Supplemental Security Income payouts are very modest to say the least. The maximum monthly SSI benefit in 2021 is $794 for an individual recipient.
The beneficiary of the trust would not have direct access to the funds. However, the trustee would be able to use the resources to make many different types of purchases that improve the beneficiary’s quality of life.
There are really very few limitations, so a supplemental needs trust can make a huge difference.
Medicaid Estate Recovery
After the death of a benefit recipient, Medicaid is required to seek reimbursement from their estate. Since you cannot qualify for Medicaid if you have significant assets in your own name, there is usually nothing to take, but the dynamic is different when a trust has been established.
There is good news on this front if you fund a special needs trust for another person with your funds (a third-party trust).
When you create the trust, you would name a successor beneficiary. After the passing of the initial beneficiary, the successor would assume the role, and Medicaid would not be able to touch the assets in the trust.
It is also possible for a person with a disability to use their own assets to fund this type of trust. This scenario will sometimes arise when a personal injury settlement or judgement is received.
When a first party or self-settled special needs trust has been established, Medicaid would be able to go after the remainder after the death of the grantor/beneficiary.
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We make an effort to provide educational opportunities to members of our community so they can make informed estate planning decisions. To this end, we offer webinars on an ongoing basis, and you can learn a lot if you join us for one of these sessions.
There is no charge to attend, and you don’t have to leave your couch to participate, so this is a great way to invest a little bit of spare time. You can see the dates if you visit our webinar page, and when you identify the session that works for you, follow the simple instructions to register.
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