You could name all of your heirs in a last will, and you could make them beneficiaries of a living trust. However, it is not always the right choice, because the optimal way to get resources into the hands of one person may not be beneficial for the next.This definitely applies to inheritances that are being passed along to people with disabilities.
A very significant percentage of individuals with disabilities rely on Medicaid as a source of health insurance. Clearly, this is nothing more or less than a lifeline, because people with special needs often incur medical costs over the years that can reach seven figures.Supplemental Security Income (SSI) is another benefit that provides a limited but much-needed source of income for folks that earn little to no money. Both of these benefits are exclusively available to people that can prove that they have very limited resources in their own names.If you were to leave a direct inheritance to a person that is relying on these need-based government programs, it could trigger a loss of eligibility.
The estate planning device that is typically utilized under these circumstances is the supplemental needs trust. These instruments are alternately referred to as special needs trusts for obvious reasons.To implement this strategy, you would fund the trust and name a person or a professional fiduciary to act as the trustee, which is the trust administrator. Medicaid does not cover every health care related expense that could be incurred, and Supplemental Security Income is not going to satisfy all of the needs of a benefit recipient.As long as everything is done in accordance with standards that have been set forth by these government agencies, the trustee could use assets in the trust to satisfy the supplemental needs of the beneficiary. Benefit eligibility would not be negatively impacted.With the above in mind, getting back to the choice of a trustee, a professional like a trust company or the trust department of a bank will understand exactly how to proceed under these sensitive circumstances. This is definitely something to take seriously if you decide to establish a special needs trust.
This is an excellent question, and the answer is that it all depends on the source of the funding.If you create and fund a supplemental needs trust for the benefit of someone else, it would be a third-party trust. Medicaid is required to seek reimbursement from the estates of deceased benefit recipients, but assets that have been conveyed into this type of trust would be protected during Medicaid estate recovery efforts.It is possible for a parent, a grandparent, a court, or a legal guardian to use assets that are the property of a disabled individual to establish a special needs trust. This would be a first party or self-settled trust. The trustee would be able to use the assets in the trust to make the person in question more comfortable without disrupting benefit eligibility.That’s the good news, but the bad news is that Medicaid would be empowered to absorb assets that remain in the trust during reimbursement efforts. This is one of the reasons why you would want to establish a third-party special needs trust for the benefit of a loved one if it is at all possible.