When it comes to estate planning, many people think that you name the beneficiaries in a will and that’s the long and short of it. In fact, this can be a mistake when it comes to estate planning for people with disabilities. Let’s look at the details.
Government Benefits
You can potentially provide for each person on your inheritance list in a different manner. This is usually not necessary, but in some cases, it can be the correct course of action. Special needs planning for people with disabilities would certainly fit into this category.
When you pass down assets to someone in this position, you have to be concerned about government eligibility. Most people with disabilities get health insurance through Medicaid, and they receive income via the Supplemental Security Income (SSI) program.
These are need-based benefits, so a significant improvement in financial status can disrupt eligibility. This is why you should consult with an estate planning attorney before you leave a direct inheritance to someone that is in this position.
Estate Planning for People With Disabilities
There is an ideal solution in the form of a supplemental needs trust. This device is also referred to as a special needs trust. To implement this strategy, you establish and fund the trust, and you designate a trustee to act as the administrator.
Any adult who is willing to assume the role can technically act as the trustee. In fact, if you establish the trust, you can actually be the trustee. However, we are looking at this from an estate planning perspective, so you will not be around to administer the trust.
You can choose someone you know who has a good bit of financial and legal acumen. If you do not know anyone that would fit this description, you can use a professional fiduciary like a trust company or the trust department of a bank.
Medicaid does not cover every medical and dental procedure that a person may want or need. The maximum Supplemental Security Income payout this year is $943 a month for an individual, and this does not go far.
The beneficiary does not have direct access to the resources, and as you will learn, this is a good thing. However, the trustee would be able to purchase goods and services that improve the beneficiary’s life many different ways. They can provide vacations with or without companionship, transportation, a specially equipped vehicle, training and tuition, electronic equipment, household furnishings, and on and on. Cash payments for food and shelter are the only prohibited expenditures.
Medicaid Estate Recovery
Medicaid is required to seek reimbursement from the estates of beneficiaries after they pass away. Since you cannot qualify for Medicaid if you have more than $2,000 in countable assets in your name, there will usually be nothing for them to take.
The situation is different when there is a remainder in a supplemental needs trust. As we have stated, the beneficiary does not have direct access to the resources, and they never owned the assets. For these reasons, assets that remain in the trust after their death would not be part of their estate.
This means that the property that is held by the trust would be protected during the Medicaid estate recovery phase. A successor beneficiary that you name in the trust would assume the role.
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Since founding Parman & Easterday in 1985, Larry has led over 1,000 free, community-service education programs and helped more than 10,000 Oklahoma families go from putting off their estate plan to getting it done. His goal for every client is the same: to become the person their family calls "the one who took care of everything."
Larry is the author of three books: The Straight Shooter's Guide to Estate Planning; Estate Planning Basics; and Guiding Those Left Behind in Oklahoma. He served as Oklahoma's Secretary of State and Secretary of Commerce, and his firm is the only member of the American Academy of Estate Planning Attorneys in the state.
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