It is difficult to lose a loved one, and no one wants to receive a financial windfall at the expense of someone they care about. At the same time, the decedent’s assets have to be transferred to someone, so an inheritance is going to be welcome in almost all cases.
There are certain circumstances that can muddy the waters. Planning for a person with special needs is one of them.
Medicaid and Supplemental Security Income
A significant percentage of individuals with disabilities are not in a position to work. As a result, they are not offered health insurance through their employers. Because they are unable to earn income, they qualify for Medicaid. They may also receive Supplemental Security Income.
There is a $2000 asset limit, so you cannot qualify if you have significant assets in your name. An individual relying on these benefits would be in a different financial position if they were to come into a good bit of money through an inheritance.
As a result, the individual would lose the benefit eligibility if they maintain direct personal possession of the inheritance. You should keep this in mind if you will be leaving an inheritance to a loved one who is enrolled in these programs.
Supplemental Needs Trust
You can use a supplemental needs trust to provide for someone with a disability that is receiving these government benefits. When you establish the trust, you transfer resources into it, and you name a trustee to act as the administrator.
The trustee can be any adult that is willing to assume the role. The grantor can also be the trustee. However, if you are using the trust for estate planning purposes, you are not going to be around to handle the administration tasks.
Some people use a professional fiduciary like a trust company or the trust department of a bank. Such entities will charge a fee, but there are benefits. For example, there would be no longevity concerns. The trustee will also understand the guidelines and a qualified money manager would hold the reins.
The beneficiary would not be able to directly access assets in the trust. From a legal perspective, they would not own the assets. As a result, the trustee can use assets in the trust to make purchases that improve the beneficiary’s life without impacting their benefit eligibility.
The trustee can acquire a wide range of different goods and services without breaking any rules. Direct cash payments for food or shelter are off-limits. You will be assessed a penalty if the trustee breaks this rule. The benefits, however, are not completely forfeited.
Medicaid Estate Recovery
Medicaid is bound by legislative mandates. There is a provision in place that requires the program to seek reimbursement from the estates of deceased beneficiaries.
Since you cannot qualify if you have more than $2000 in your own name, there is usually nothing for them to take during the recovery phase. You could establish a supplemental needs trust to avoid this situation.
If you utilize your funds to establish a trust for the benefit of another person, it would be a third-party trust. Since the individual in question never owned the assets at any time, the remainder that is left in the trust after their passing would not be part of their estate.
As a result, Medicaid would not be able to touch them. The successor trustee that you named in the trust declaration when you created the trust would inherit them.
You can fund a supplemental needs trust with assets that belong to the person that will be the beneficiary. For example, they may receive a personal injury settlement or judgment. You can use those assets to fund a self-settled special needs trust.
The trustee would be able to use the assets in the same manner to make the beneficiary more comfortable. Medicaid would be able to attach the remaining assets during the recovery phase, but only after the death of the beneficiary.
We Are Here to Help!
Today is the day for action. Do not go through life without a carefully constructed plan that provides for all of your loved ones. Schedule a consultation at our Oklahoma City estate planning office by calling us at 405-843-6100, or you can use our contact form to send us a message.
- Understanding IRA Inheritance Planning: Key Considerations - September 14, 2023
- Irrevocable Trust Decanting Provides Flexibility - September 12, 2023
- Inheritance Planning Solution for a Spendthrift Heir - September 7, 2023
