Most people in the United States get health insurance through their employers. However, many individuals with special needs cannot enter the workforce, so this is not an option. They definitely need health insurance, and fortunately, there is a safety net in the form of Medicaid.
This is a need-based program. This means you cannot qualify for Medicaid if you have more than $2,000 in countable assets in your name. Supplemental Security Income (SSI) is another government benefit that provides income for people with disabilities that cannot work.
Inheritance Planning Implications
Since these benefits are only available to people with limited financial resources, how can you leave an inheritance to someone who is relying on them?
There is an advanced estate planning approach that can be taken under these circumstances. You could convey assets into a special needs trust to help someone with a disability without impacting their benefit eligibility.
Approved Expenditures
Now that we have provided the necessary background information, we can address the question that serves as the title of this post. If you establish a special needs trust, you name a trustee to act as the administrator. The person you want to help out would be the beneficiary.
The trustee can be someone that you know personally. This person would have the time and the financial acumen to handle the position. If you do not have such a person, there is another option. Professional fiduciaries provide trustee services for a fee. This can be the right choice under some circumstances.
Technically, the government benefits are supposed to cover necessities like food, shelter, and clothing. This being stated, the maximum SSI payment in 2024 is $943 a month, so that is not going to go very far.
Under the guidelines, the trustee can use the assets in the trust to supplement the government benefits. There are countless different goods and services that can be provided by the trustee without breaking any rules. Here is a partial list:
- Motor vehicle with or without modifications
- Vacations
- Computers and other electronic equipment
- Training and tuition
- Healthcare-related treatments not covered by Medicaid
- Transportation
- Paid companionship
- Appliances and household items
- Insurance and final expenses
First Party vs. Third Party Special Needs Trust
If a person with a disability comes into money after they are receiving these benefits, the resources can be used to fund a first party or self-settled special needs trust. The details would be the same with regard to the trustee’s ability to make the beneficiary more comfortable.
However, there is the matter of Medicaid estate recovery. The program is required to seek reimbursement from the estates of beneficiaries after they pass away.
Assets that remain in a first party special needs trust would be available when Medicaid is seeking reimbursement.
The remainder that is left in a third-party trust that is funded by someone other than the beneficiary would be protected during the Medicaid recovery phase. A successor beneficiary would be named in the trust declaration, and they would become the active beneficiary.
Attend an Educational Event!
You reached this site because you are looking for information about estate planning and elder care, and we have some fantastic opportunities coming up in the near future. We are conducting a series of seminars, and you can learn a lot if you attend one of these sessions.
You can see the schedule if you visit our Oklahoma City estate planning seminar page, and when you identify the session you would like to attend, follow the instructions to register so we can reserve your spot.
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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