When you discuss potentially challenging estate planning matters with an attorney from our firm, you will probably be pleasantly surprised when you become aware of the solutions. There are many different approaches that can be taken depending on the circumstances that exist.
With this in mind, we will look at third party supplemental needs trusts in this piece.
Government Benefit Eligibility
A very significant percentage of people with disabilities rely on Medi-Cal as a much needed source of health care insurance. You are probably aware of the fact that this benefit is only available to people with very limited financial resources.
There are some assets that do not count, but we will explain the details at another time.
Another benefit that individuals with special needs often qualify for is Supplemental Security Income or SSI. As the name would indicate, this program provides a modest but steady stream of monthly income for those that cannot earn much on their own due to their disabilities.
Once you have gained eligibility for these benefits, it is not permanently etched in stone. An improvement in financial status could disrupt the balance and trigger a period of ineligibility. This is something to keep in mind when you are planning your estate if you have a benefit recipient on your inheritance list.
Medi-Cal Estate Recovery
If you are faced with this type of situation, you could establish a third party supplemental needs trust for the benefit of a loved one with a disability. It is called a third party trust because the assets that are used to fund the trust are coming from someone other than the beneficiary.
The government benefits do not cover everything, and the unmet needs are referred to as supplemental needs in this context. This is why the trust is called a supplemental needs trust.
When you create the trust declaration, you would name a trustee to serve as the trust administrator. Under program rules, the trustee would be allowed to use assets in the trust to make the beneficiary more comfortable in many different ways.
As long as the rules are followed to the letter, benefit eligibility would not be impacted.
Medi-Cal is required to seek reimbursement from the estates of people that were enrolled in the program during their lives.
However, when you establish a third-party trust, a successor beneficiary that you name in the trust agreement would assume ownership of the remainder. Medi-Cal would not be able to attach the funds.
It is possible for a supplemental needs trust be created with assets that are the property of the beneficiary. This would be a first party or self-settled special needs trust.
Everything would be the same regarding the ability of the trustee to use assets in the trust to satisfy the unmet needs of the beneficiary/grantor. That’s the good news, but the bad news is that the remainder would be available to Medi-Cal during their estate recovery efforts.
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