Is there any risk involved if I leave a loved one with a disability a direct inheritance?
Some negative consequences can come about if you not take steps to implement an intelligently conceived plan. People with special needs are going to require costly medical care throughout their lives. For most, Medicaid is a much needed source of health insurance.
This program is only available to people with very limited assets. Though there are some possessions that do not count, the resource limit is just $2000. As a result, a sudden windfall could result in a loss of benefit eligibility.
Are there any other benefits that could be forfeited?
Yes, there is another need-based benefit that many people with disabilities rely upon to one extent or another. Supplemental Security Income (SSI) provides a very limited but steady source of income. Eligibility can be negatively impacted by a change in financial status.
What is the solution?
There is a legal device called a supplemental needs trust or special needs trust. If you were to establish this type of trust, you would be called the grantor, and the person that you want to provide for would be the beneficiary. You would fund the trust and name a trustee to serve as the administrator.
Medicaid and Supplemental Security Income do not necessarily satisfy all the needs of a benefit recipient. As long as the program rules are followed precisely, the trustee could use assets in the trust to satisfy these unmet needs without impacting ongoing benefit eligibility.
What happens to assets that may be left in the trust after the death of the beneficiary?
This is a very good question, and the answer underscores why effective special needs planning is so important on a couple of different levels. If you establish a trust for the benefit of another person, it would be a third-party trust, because the assets would be coming from someone other than the beneficiary.
Medicaid is required to seek reimbursement from the estates of people that were enrolled in the program during their lives. When a third-party special needs trust has been established, the remainder would be out of play during these estate recovery efforts.
As the grantor of the trust, you would name a secondary beneficiary to assume ownership of the remaining assets in the trust after the passing of the initial beneficiary. This transfer would not be subject to Medicaid recovery.
Why is there this distinction? Can a disabled person establish their own special needs trust?
These questions would naturally come to mind if you have been paying attention. Sometimes a person with a disability will come into money through a personal injury settlement, or even an inheritance that is clumsily passed along.
Under these circumstances, a representative of a person with a disability, such as a parent, a grandparent, a legal guardian, or a court, could use the assets to fund a special needs trust. This would be a first person or self-settled special needs trust.
The situation would be the same with regard to the ability of the trustee to utilize assets in the trust to satisfy the supplemental needs of the grantor/beneficiary. However, the assets would not be protected during estate recovery. This is the downside, and it can be quite costly depending on the extent of the resources in question.
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If you would like to discuss special needs planning or any other estate planning matter with a licensed attorney, we are here to help. You can send us a message to request a consultation appointment, and you can speak with someone over the phone if you give us a call at 775-823-9455.