There are many different approaches that can be taken when you are planning your estate. The right way to facilitate asset transfers to one person may be disastrous for the next, and we will provide an explanation in this post.
People With Disabilities and Government Benefits
Many people with disabilities are unable to work, so they cannot get health insurance through their employers. Since they are not part of the workforce, they have sparse resources, so they can qualify for Medicaid and Supplemental Security Income.
Obviously, health insurance is especially important for individuals that are in this position. Medicaid is only available to people with less than $2000 in countable assets, so a windfall of money could cause a loss of eligibility.
This is an important factor to consider if you will be leaving an inheritance to a person with special needs. Fortunately, there is a solution in the form of a supplemental needs trust.
Preservation of Benefits
To implement this strategy, you establish and fund the trust, and you designate a beneficiary. This can be an individual that you know personally, but there is another option. Trust companies, the trust departments of banks, and other professionals offer trustee services for a fee.
A professional fiduciary can be relied upon to effectively manage appreciable assets, and they would understand the rules that must be followed to preserve benefit eligibility. There is an expense involved, but it can be justifiable in some cases.
The trustee would be able to use the assets in the trust to provide anything other than cash distributions that are used to pay for food and shelter. If these essentials are provided, there would be a reduction the SSI payout, but the benefits would not be completely lost.
Medicaid Estate Recovery
Medicaid is required to seek reimbursement from the estates of deceased beneficiaries. There is usually nothing to take during the recovery efforts because you cannot qualify if you have significant assets in your name.
However, the dynamic is different when there is a remainder in a supplemental needs trust. If you fund the trust for the benefit of someone else, the beneficiary never owned the assets. As a result, the remainder would not be part of their estate.
The Medicaid program cannot put a lien on assets that are the property of another entity, so the resources would be protected. When you establish the trust, you would name a successor beneficiary, and they would inherit the assets that are left in the trust.
At times, a person with a disability that is relying on these benefits will receive a personal injury judgment or settlement, and they could come into money from another source. The resources could be utilized to fund a first party or self-settled supplemental needs trust.
All the same rules would apply, so the trustee would be able to provide many different goods and services that make the beneficiary more comfortable. Unfortunately, after the death of the grantor/beneficiary, the assets that remain in the trust would be part of the decedent’s estate.
This means that Medicaid would be able to reach the assets during the estate recovery phase. For this reason, you would not want to leave a direct inheritance to a person with a disability with the understanding that they could establish a supplemental needs trust.
Take Action Today!
We looked at a particular scenario in this post, but there are many different situations that call for targeted solutions.
When you choose our firm, we will put you at ease and gain an understanding of your objectives. All of your options will be explained to you, and we will answer your questions. At the end of the process, you will emerge with a custom crafted plan that ideally suits your needs.
If you are ready to get started, you can schedule a consultation at our Memphis, TN estate planning office if you call us at 901-763-2500 or 866-997-6325. There is also a contact form on this site you can fill out if you would prefer to send us a message.
At Mendelson Law Firm, Mr. Wachtel focuses on Litigation (Business Litigation, Insurance Defense, Commercial Collections, Subrogation, Landlord/Tenant, Automobile Litigation, etc.), Probate and Estate Planning (Wills, Estates, Trusts, Powers of Attorney).
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