On the surface, no one would have any concerns about receiving an inheritance. When you are devising your estate plan, everyone that you include will obviously be appreciative.
However, there are some extenuating circumstances that can enter the equation. Consider the life situation of a loved one with special needs. Many people with disabilities cannot earn income on their own, and they do not have health insurance. Everyone needs income, and health insurance is important as well, but it is absolutely essential for people with special needs.
The income solution for many is a government program called Supplemental Security Income or SSI.
Medicaid is a jointly run federal/state government program that provides health insurance for a significant percentage of people with disabilities.
These programs are only available to people who have a significant level of financial need. The limit on countable assets is $2000.
Once a person is deemed eligible for Medicaid and SSI, the eligibility is not necessarily permanent. This is why you have to take pause before you leave a large direct inheritance to someone who is enrolled in these government benefit programs. An improvement in financial status could change everything. Eligibility for Medicaid and Supplemental Security Income could be forfeited if a benefit recipient was to come into money.
Estate Planning Solution
There is an estate planning solution for you if you would like to make a loved one with special needs more comfortable without impacting government benefit eligibility. You could address this type of scenario through the creation of a supplemental needs trust. These legal devices are sometimes referred to as special needs trusts.
The first order of business will be to convey assets into the trust. Since the funding would be coming from someone other than the beneficiary, it would be a third-party special needs trust. You would name a trustee in the trust declaration, and the trustee would handle the trust administration tasks.
Your beneficiary would be the loved one that you want to provide for, and the beneficiary would have no ability to directly access assets in the trust. This is the key. Under program rules, the trustee could utilize the trust’s assets for certain approved purposes that make the beneficiary more comfortable. These expenditures would not impact ongoing eligibility for Medicaid and Supplemental Security Income.
Under some circumstances, Medicaid would be required to seek reimbursement from the estate of a deceased person who was a benefit recipient during his or her life. When a third party special needs trust has been established, the Medicaid program would not go after assets that remain in the trust after the death of the beneficiary.
If you would like to discuss special needs planning with a licensed professional, contact us through this page to set up a consultation: Smithtown NY Special Needs Planning.
To learn more, please download our free New York special needs trust here.
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