We always emphasize the importance of personalized attention when it comes to estate planning, because each case is unique. That there are many different approaches that can be taken, and the right one will depend upon the circumstances. This is true in a broad sense with regard to the primary vehicle of asset transfer you utilize.
At the same time, you should also consider the life situation of each person on your inheritance list. What may be best for one individual may not be appropriate for another. With this in mind, we will look at some facts about special needs planning in this blog post.
Medicaid and Supplemental Security Income
Medicaid is a government health insurance program for people with very limited financial resources. A significant percentage of people with disabilities cannot earn income, so they have sparse assets. As a result, they can qualify for Medicaid as a much-needed source of health insurance. However, once eligibility has been granted, it is not necessarily permanent. A significant change in financial status could cause a forfeiture of Medicaid eligibility.
There is another government program that many people with special needs rely on called Supplemental Security Income, and it is somewhat self-explanatory. People that cannot earn anything on their own because they are disabled can often qualify for this government benefit that will provide a modest source of income. Once again, a windfall of money could render a benefit recipient ineligible for SSI.
If you are going to be leaving an inheritance to someone with special needs that is enrolled in these programs, you should take pause. A significant direct bequest could cause a loss of eligibility for these benefits. The same thing would be true if you were to give a large gift to a loved one with a disability while you are still living.
Special Needs Trusts
Fortunately, there is a solution that can preserve eligibility for Medicaid and Supplemental Security Income in the form of a special needs trust. These legal devices are alternately referred to as supplemental needs trusts. If you were to establish and fund a trust for someone else, it would be a third-party special needs trust.
You name a trustee to administer the trust, and the beneficiary would be the person with special needs that you would like to support. Your beneficiary would not have the ability to directly control any assets that have been conveyed into the trust. Medicaid and Supplemental Security Income will satisfy some of the needs of the beneficiary, but not all of them. Under program rules, the trustee would be permitted to use assets in the trust to fill in some of these gaps. They are considered to be “supplemental needs,” and this is where the alternate name of the trust comes from.
Medicaid is required to seek reimbursement from the estates of people that were enrolled in the program while they were living. When a third-party special needs trust has been established and there are assets remaining after the death of the beneficiary, they would go to a successor beneficiary. The Medicaid program would not have access to these funds.
However, there is another type of special needs trust called a self-settled or first party special needs trust. A parent, a grandparent, a guardian, or a court can establish this type of trust with assets that are the direct personal property of a person with special needs. The same situation would exist with regard to the ability of the trustee to use assets in the trust to make the beneficiary more comfortable. However, with this type of trust, Medicaid would be able to attach any remainder that is left in the trust after the passing of the grantor/beneficiary.
Learn More About Special Needs Planning & Other Important Topics!
Our Smithtown special needs planning attorneys go the extra mile to provide all different types of educational materials to local residents. There is a lot of very useful information on this website beyond this blog, and we urge you to explore all of the resources that we offer.
Plus, in addition to the written information, we hold informative seminars on an ongoing basis. There are a number of dates coming up in the near future, and you can learn a lot if you attend one of these sessions. We do not charge for our seminars, but we do ask that you visit our registration page and let us know you are coming so that we can reserve your seat.
Mark S. Eghrari, Estate Planning Attorney
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