The process of estate planning is a multifaceted endeavor, so it is important to understand the fact that there are different asset transfer methods. There is no one universal approach that is right for everyone.
Since there are many tools in the estate planning toolkit, there is an ideal solution for just about any situation. With this in mind, let’s look at estate planning for individuals with special needs.
Government Benefit Eligibility
Obviously, people with special needs are going to require costly medical care throughout their lives. Health insurance is an absolute must, but many of these folks cannot work, so they do not get coverage through their jobs.
Since they have limited monetary resources, they can qualify for the Medicaid program as a source of health insurance. In New York, it is only available to people with less than $15,900 worth of countable assets, so an improvement in financial status could trigger a loss of eligibility.
There is another need-based government program that many people with disabilities rely on called Supplemental Security Income (SSI). The purpose of this benefit is rather self-explanatory: it provides a monthly stream of income for qualified people with disabilities.
Once again, eligibility is not necessarily permanent, and a sudden windfall could make the payments come to a halt.
Supplemental Needs Trusts
What do you do under these circumstances if you want to make someone you love more comfortable without impacting the benefits? The widely embraced solution is an estate planning device called a special needs or supplemental needs trust.
The way that it works is you fund the trust, and you engage a trustee to act as the administrator. Of course, the person who you want to help would be the beneficiary.
This would be an irrevocable trust, and the beneficiary would not have direct access to resources that have been conveyed into the trust. Under benefit program rules, the trustee would be allowed to use assets in the trust to make certain purchases that improve the life of the beneficiary.
There are different possibilities, including school tuition, medical treatments that are not covered by Medicaid, vacations, transportation, electronic equipment, musical instruments, and many other goods and services. As long as the rules are followed correctly, government benefit eligibility would not be impacted.
Medicaid Estate Recovery
It is possible for a Medicaid and SSI recipient to use assets that are their own personal property to fund a supplemental needs trust. This scenario can sometimes exist when someone receives a settlement or judgment from a personal injury lawsuit.
That’s the good news, but the bad news is that Medicaid would be able to attach assets that remain in the trust after the death of the beneficiary.
Under the other scenario that we described in the previous section, the funding would be provided by a third party. When a third-party special needs trust has been established, Medicaid cannot go after the remainder that is left in the trust after the beneficiary’s passing.
What happens to the remainder? If you establish this type of trust, you would name a successor beneficiary in the trust declaration. This individual or entity would assume ownership of resources in the trust when the initial beneficiary is gone.
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