When you think about estate planning, the way that you want to spread around your assets will probably be at the center of your thought processes. Without question, this is certainly part of the equation, but there is another thing to take into consideration.
The life situation of each person on your inheritance list should be evaluated, because there are different ways to facilitate postmortem asset transfers. You should understand all the facts because you can make mistakes that yield unintended negative consequences if you are not well informed.
People with Special Needs
If you intend to leave an inheritance to someone with a disability, you have to consider government benefit eligibility. Without question, people with special needs are going to require expensive medical care. Health insurance is a must, and most people that have disabilities cannot work and obtain coverage through their jobs.
Medicaid is a jointly administered federal/state government health insurance program that is available to individuals with special needs and others. Since it is intended for people with very sparse financial resources, there is a low asset limit. We practice law in Michigan, and in our state, the limit is just $2000 at the time of this writing.
There is another need-based government program that serves as a monetary lifeline for many people with disabilities. Supplemental Security Income is more or less self-explanatory. SSI provides a steady but consistent stream of income to qualified recipients that cannot earn money on their own because of their limitations.
Once eligibility for these programs has been granted, it is not permanently etched in stone. An improvement in financial status can cause a loss of benefits. This is something to take into consideration if you are going to leave an inheritance to a loved one with a disability.
Supplemental Needs Trusts
To account for this type of situation, you can establish a supplemental needs trust for the benefit of an inheritor with special needs. The way that it works is you fund the trust, and you name a trustee to act as the administrator. It can be someone that you know personally, but many people will use a professional fiduciary like a trust company or the trust section of a bank.
The beneficiary would have no direct access to funds that have been conveyed into the irrevocable supplemental needs trust. However, the trustee would be allowed to use resources in the trust to satisfy the supplemental needs of the beneficiary. These are needs that are not being met by the government benefits.
After the death of a person that has been enrolled in the Medicaid program, his or her estate can be attached in an effort to obtain reimbursement for monies spent. However, if you establish a supplemental needs trust for the benefit of someone else, it would be a third-party special needs trust. Under these circumstances, Medicaid would not be able to go after funds that remain in the trust. Any remainder that may exist would be transferred to a secondary beneficiary that you name when you create the trust declaration.
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