There is more to estate planning than the one-dimensional approach as the giver. You should also consider the life situation of each heir that will be receiving an inheritance after you pass away.
A perfectly acceptable way to get assets in the hands of one person may not be appropriate for the next. With this in mind, we are going to look at special needs planning and Medicaid estate recovery in this post.
Need-Based Government Benefits
Many people who have disabilities rely on Medicaid as a source of health insurance. They also receive income through the Supplemental Security Income (SSI) program. These are need-based benefits, so there are strict income and asset limits.
Once eligibility has been granted, it is not necessarily permanent. It could be lost if a benefit recipient comes into money. This is why there is a specific estate planning category called special needs planning.
Supplemental Needs Trusts
Supplemental Security Income payouts are very modest, so they do not go very far. Medicaid is a solid source of health insurance, but it does not cover every type of medical and dental procedure and therapeutic service.
You could provide some resources that can be used to satisfy these unmet needs if you make a loved one with a disability the beneficiary of a supplemental needs trust. To implement this strategy, you would fund the trust and name a trustee to act as the administrator.
Technically, any adult who is willing to accept the role can serve as a trustee. However, you may not know anyone suitable. Under these circumstances, you could engage a professional fiduciary. The trust departments of banks, trust companies, and other professionals offer trustee services for a fee.
The trustee would be able to use assets in the trust to satisfy the unmet needs of the beneficiary. There are very few limitations, so a well-funded trust could make a very big difference in the life of the beneficiary.
Medicaid Estate Recovery
Medicaid is required to seek reimbursement from the estates of people who were enrolled in the program when they were living. With the exception of a home, you cannot qualify if you have significant assets in your own name, so the cupboard is usually bare.
This is not the case when a supplemental needs trust has been established for a deceased beneficiary.
First Party vs. Third Party
If you establish and fund a trust for the benefit of someone else, it would be a third-party trust. Medicaid would not be able to go after assets that remain in the trust after the passing of the beneficiary. The remainder would go to a successor beneficiary that you name when you create the trust agreement.
In some instances, a person with a disability who is relying on these benefits will receive a direct cash windfall. For example, they may be disabled because of injuries that they sustained in an accident, and they may receive a personal injury settlement or judgment.
The assets could be used to establish a supplemental needs trust. All of the details would be the same with regard to the trustee’s ability to use the resources to make the beneficiary more comfortable in many different ways.
On the downside, this would be a first-party or self-settled special needs trust. Since the assets were the property of the person who was the beneficiary, Medicaid would be able to attach the remainder during reimbursement efforts.
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We have many resources on this website that you can tap into to build on your knowledge, and one of them is our estate planning worksheet. This tool has been carefully prepared to convey a great deal of important information simply and efficiently, and it is being offered free of charge.
To get your copy, visit our Oklahoma City estate planning worksheet page and follow the simple instructions.
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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