It is important to understand the fact that estate planning is not a cookie-cutter, one-size-fits-all endeavor. Every case is different, and the right way to proceed will vary depending on the circumstances. This is why you should definitely discuss your situation in detail with a member of our firm before you make any decisions. Unfortunately, there are those that take action on their own without any legal guidance, and in some cases, negative circumstances can arise later on. This scenario can manifest if you are leaving an inheritance to someone with special needs.
Many people with disabilities rely on government benefits. Medicaid is a jointly administered federal/state government program that provides health insurance for people with very limited resources. You do not necessarily have to be disabled to qualify for Medicaid, but most people with significant disabilities cannot work and receive health insurance through their employers. As a result, a significant percentage of disabled people do rely on Medicaid as a much-needed source of health insurance.
There is another government program called Supplemental Security Income or SSI. As the name would imply, this provides a steady stream of income to people who do not have the ability to work because they are disabled. You have to be able to prove that you have financial need to qualify for Supplemental Security Income.
The limit on countable assets for Medicaid eligibility is just $2000 at the present time. If you were to leave an inheritance to a person that is relying on Medicaid and/or SSI, the windfall could result in a loss of benefit eligibility. You were trying to do a good thing, but in the end, you may wind up doing more harm than good if you leave a direct inheritance without any strategic planning.
Supplemental Needs Trust
Now that you have the necessary background information, we can get to the point of this blog post. If you have someone on your inheritance list that is relying on these government benefits that are need-based, you have an option that can provide the best of all possible worlds. A special needs or supplemental needs trust can be established for the benefit of the loved one in question.
The way that it works is you fund the trust, and you name a trustee to act as the administrator. Your family member with special needs would be the beneficiary of the trust. The beneficiary would not be able to directly access any resources that have been conveyed into the supplemental needs trust. However, the trustee would be able to utilize assets in the trust to satisfy the beneficiaries unmet needs without jeopardizing government benefit eligibility.
State and federal laws require Medicaid representatives to seek reimbursement from the estate of a deceased individual that was enrolled in the program. If you establish a supplemental needs trust for the benefit of someone else, it would be a third-party special needs trust. You could add a successor beneficiary when you establish the trust. After your passing, this second beneficiary would assume ownership of any assets that may remain in the trust. Medicaid would not be able to try to attach the remainder.
In some cases, a person with a disability will acquire assets from a personal injury settlement or some other source. Under these circumstances, a parent, a grandparent, a guardian, or a court could establish a first party supplemental needs trust for the benefit of the disabled individual. When a first party or self-settled special needs trust is in place, Medicaid could attach assets that remain in the trust after the passing of the beneficiary.
Download Our Free Estate Planning Worksheet
We provide resources and this website that can help you understand various different facets of the estate planning process. One of them is the worksheet that has been produced by our attorneys. It is available free of charge, and you can click this link to gain access to the download.
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Now is the time for action if you are going through life without an estate plan. Our attorneys offer no obligation consultations, so we would be glad to sit down with you, gain an understanding of your situation, and ultimately provide the appropriate guidance. You can give us a call at 586-493-7661 to set up an appointment, and you also have the option of sending us a message through our contact page.