Special Needs Planning Demystified

Different methods that can be used to transfer assets to the people on your inheritance list. A perfectly acceptable way to get a bequest into the hands of one person may be very wrong for another.

This becomes clear when providing for a person with a disability. We will look at the details in this post.

Government Benefit Eligibility

People with disabilities need health insurance, but a significant percentage of them cannot work. This means they can’t get health insurance through their employers. And if you are not part of the workforce, you will need income from another source.

Fortunately, there are safety nets to fill the gaps to some extent. Medicaid is a jointly administered federal/state government health insurance program for people with limited resources. Supplemental Security Income (SSI) is a source of income for those who are disabled.

Here is the problem. Even though you are currently eligible for one or both of these programs, you could lose your eligibility if you were to have a sudden change in financial status. This is why it is important to use advanced planning techniques if you wish to provide an inheritance for someone with a disability.

Supplemental Needs Trust

If you want to provide for someone in this position without doing harm, you can transfer or leave assets to a supplemental needs or special needs trust (SNT). To do this, you create and fund the trust and name a trustee to act as the administrator.

The trustee can be another family member, someone you know, or a professional fiduciary. Trust departments of banks and trust companies offer trustee services and the investment can prove worthwhile.

Medicaid does not cover every medical, dental, and therapeutic procedure a beneficiary may want or nee. And the maximum SSI benefit in 2021 is just $794 a month. This might not go far and with an SNT, the trustee can use trust assets to satisfy the beneficiary’s unmet needs.

Below is a partial list of goods and services that can be provided:

• Motor vehicle (specially equipped if necessary)
• Residential property
• Appliances and other household items
• Electronic equipment
• Vacations
• Medical and dental procedures not covered by Medicaid
• Therapeutic and rehabilitative treatments
• Training and tuition
• Paid companionship

Funds in a special needs trust can dramatically improve a beneficiary’s quality-of-life. So long as the rules are followed, no benefits will be lost.

Medicaid Estate Recovery

The last piece to the puzzle is navigating Medicaid estate recovery. Medicaid can place a lien on property that remains in the estates of people who were enrolled in the program while living.

Since Medicaid is a need-based program, you cannot qualify if you own assets (excluding a home, vehicle, and a few other items), so there usually is nothing for the state to take.

With a special needs trust, typically something will be left when the beneficiary dies.

If you establish a trust for someone else with your funds, called a third party trust, the assets will be protected. The successor beneficiary named in the trust becomes the new beneficiary and Medicaid cannot reach the trust.

A person with a disability can use their own funds to establish a supplemental needs trust, called a first party trust, but what remains in the trust when the person dies is available for Medicaid recovery.

Access Our Estate Planning Worksheet!

We prepared a simple, effective worksheet you can use to gain a more thorough understanding of the estate planning process. This worksheet is offered free of charge and you can get your copy right now if you head over to our worksheet access page.

Need Help Now?

Learning is great, but at some point you will want to work with an Oklahoma City (or Tulsa) estate planning attorney to put your plan in place. If that time is now, you can send us a message to request a consultation. You can also call us at 405-843-6100.