Estate planning is often looked upon as a one-way street. The idea is that you determine how you want to distribute your assets, and that’s the long and short of it.
You can take this approach, but if you do, loved ones may pay the price.
There are various different ways to get assets into the hands of your heirs, and the best method will vary based on the circumstances.
A transfer device that is perfectly acceptable for one individual may not be right for the next. This definitely comes into play if you have a person with a disability on your inheritance list.
Need-Based Government Benefits
Most people in the United States get health insurance through their employers. Since many folks with disabilities are not in a position to work, this is not an option for them. Clearly, they have financial need because of this inability to participate in the workforce.
Fortunately, there are government benefits for people that are in this situation. Medicaid is a source of health insurance, and Supplemental Security Income provides a very modest but consistent stream of monthly cash.
Because these programs are earmarked for people with significant financial need, an improvement in financial status can cause a loss of eligibility. This is why you should take pause before you name someone with a disability as a beneficiary of your trust or will.
Supplemental Needs Trust
A solution exists in the form of a supplemental needs or special needs trust. To execute this strategy, you fund the trust and you name a trustee to manage the assets for the special needs beneficiary according to your instructions. Any adult that is willing to take on the role can technically act as the trustee. However, there is another option that may be preferable.
Trust companies and the trust department of banks provide trustee services, and there are some other professional entities that can be engaged. When you use an experienced fiduciary, you can be sure that the trust will be managed effectively, and there would be inherent oversight.
Under the rules of these programs, the trustee would be allowed to use resources in the trust to make purchases that enhance the life of the beneficiary. There are actually very few limitations with regard to the goods and services that can be provided as long as the trust is drafted the right way.
As long as this trust is administered according to government guidelines, ongoing eligibility for Medicaid and Supplemental Security Income would not be jeopardized.
Medicaid Estate Recovery
After the death of a Medicaid recipient, the program is required to seek reimbursement from their estate.
If you establish a supplemental needs trust with your funds for the benefit of someone else, it would be a third-party trust. You would name a successor beneficiary in the trust document who would be entitled to receive the benefits of the trust after the death of the first beneficiary.
Medicaid would not be able to touch assets in the trust during recovery efforts.
Sometimes a person with a disability who is enrolled in these programs will come into money through a personal injury settlement or judgment, or from some other source. Under these circumstances, they would be able to establish a first-party or self-settled special needs trust.
The parameters would be the same with regard to the ability of the trustee to use assets in the trust to make the grantor/beneficiary more comfortable. On the negative side of the coin, the remainder would be available to Medicaid during the recovery stage.
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