Most individuals with special needs rely on Medicaid as a source of much needed health insurance. Since this program is only available to people with very sparse financial resources, there is an income limit. In the state of New York at the time of this writing, the limit on countable assets is just $15,450.
If you have a loved one with special needs, you may want to utilize resources to make your family member more comfortable. The fact that there is this asset limit that governs Medicaid eligibility can make the situation complicated. A direct gift or lump sum inheritance could cause a loss of Medicaid eligibility until the assets that have been received have been exhausted.
However, there is a solution, but it is far from perfect. When an individual with special needs that is relying on Medicaid coverage comes into money through an inheritance or a personal injury settlement or some other source, it does not necessarily have to result in immediate ineligibility.
Under the rules of the program, it is possible for a parent, a court, a guardian, or a grandparent to use the funds that are the property of the disabled individual to establish a special needs trust. These vehicles are alternately referred to as supplemental needs trusts. When the assets that are used to fund the trust are the property of the beneficiary, it is called a first party or self-settled special needs trust.
The trustee that is empowered to administer the trust would be able to use assets that are contained within it to satisfy needs that are not being met by Medicaid. Things like uncovered dental treatments, elective surgery, specialized rehabilitation, exercise equipment, etc. could be paid for with the trust’s assets.
It should also be pointed out that a lot of people with disabilities are eligible for Supplemental Security Income. The name really says it all: This program provides a steady source of modest income for people with special needs that have no ability to earn money on their own. Assets in the trust can be used to pay for certain things that are out of reach for SSI recipients.
Without question, the beneficiary will be made more comfortable through the utilization of the assets that are in the trust. This being stated, there is one big negative that goes along with the creation of a self-settled supplemental needs trust.
Under Medicaid rules, any assets that are part of the estate of a person that was enrolled in the program can be attached after the death of the individual in question. This would apply to assets that remain in a first party special needs trust. The resources would be fair game when Medicaid is engaged in its recovery efforts.
There is another type of special needs trust called a third-party special needs trust. This type of trust is established with assets that are not the property of the beneficiary. In other words, if you use your resources to establish a supplemental needs trust for the benefit of a loved one, it would be a third-party special needs trust.
Everything would be the same with regard to the ability of the trustee to use the assets in the trust to satisfy the supplemental needs of the beneficiary.
The big difference would be that the Medicaid program would not have the ability to seek recovery from assets that remain in the trust after the death of the beneficiary. This is why you would not want to give assets to an individual with special needs, even though a first party special needs trust could be established for the benefit of this person.
Attend a Free Estate Planning Seminar!
As you can see, there are a lot of nuance to take into consideration when you are planning your estate. There is no cookie-cutter, one-size-fits-all estate plan that is perfect for everyone, because each situation is unique.
If you would like to learn more about special needs planning and many other important estate planning topics, you should definitely attend one of our seminars. Our Long Island Medicaid planning attorneys are offering them free of charge at the present time, and there are a number of dates coming up in the near future. To see the schedule and obtain registration information, click this link.
Mark S. Eghrari, Estate Planning Attorney
Latest posts by Mark S. Eghrari, Estate Planning Attorney (see all)
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