There are a number of different types of trusts used in the field of estate planning, and they serve varying respective aims. This is why it is very important to discuss all the possibilities with a licensed estate planning attorney.
If you do not make fully informed decisions, you may make mistakes that have a negative impact on some people that you love, even though your intentions were good. This dynamic can certainly enter the picture when it comes to leaving an inheritance to a person with a disability.
Clearly, when an individual has some type of disability, there will be significant health care expenses. Most people with disabilities cannot work and earn income, so they cannot afford health insurance, and they do not have health insurance through an employer.
The commonly embraced solution for these people is Medicaid. This federal/state government program provides health insurance for folks with very sparse financial resources. There is a limit on countable assets of just $2,000 that an applicant must stay within to qualify for Medicaid coverage.
Another government program that is relied upon by a lot of people with special needs is Supplemental Security Income. As the name would suggest, this is a source of ongoing income for individuals that cannot earn money on their own. Once again, you have to be able to prove that you have a significant level of financial need to qualify for Supplemental Security Income.
Once you gain eligibility for these programs, it is not necessarily permanent. An improvement in financial status could render a benefit recipient ineligible. This is something to keep in mind if you want to get a gift or leave an inheritance to a loved one with special needs that is relying on Medicaid and Supplemental Security Income.
Supplemental Needs Trust
If you are in this situation, you could work with one of our Macomb estate planning attorneys to establish a supplemental needs trust for the benefit of your loved one. When you establish a trust for someone else with your own funds, it is considered to be a third party special needs trust. The trust administrator is called the trustee. You can name a person that you know to act as the trustee, but there is another option that may be preferable.
Professional fiduciaries like banks and trust companies can be engaged to administer a trust, and you gain a host of benefits if you use one of these entities. The trustee would know exactly how to administer a supplemental needs trust, so all the rules would be followed to the letter. There would be inherent oversight, and a professional will be well equipped to invest appreciable assets so that the trust will yield maximum dividends over time.
When a third party supplemental needs trust has been established, the beneficiary does not have direct access to resources in the trust. This being stated, the trustee has the power to use assets in the trust to satisfy the supplemental needs of the beneficiary. Generally speaking, these would be needs that are not being met by Medicaid and Supplemental Security Income.
The Medicaid program is required to seek reimbursement from the estate of anyone that was enrolled in the program. However, if a third party special needs trust is in place, the assets in the trust would be protected from these efforts. They would be transferred to the secondary beneficiary that is named in the trust declaration.
And speaking of Medicaid recovery, if an individual was to come into money after enrolling in the Medicaid program, a parent, a grandparent, a legal guardian, or a court could use the assets to establish a first party special needs or supplemental needs trust.
That’s the good news, but the bad news is that Medicaid could attach assets that remain in the trust after the death of the beneficiary, unlike a third party special needs.
Attend a Free Seminar!
We are holding a number of very informative seminars over the coming weeks and months at a variety of locations in Macomb County. There is no charge to attend the sessions, so you have everything to gain and nothing to lose. To see the schedule and obtain registration information, click this link: Macomb County Estate Planning Seminars.