There is the right tool for the right job in any field of endeavor, and this certainly comes into play when you are talking about inheritance planning. You have many different options when you are planning your estate, and you should carefully explore them so that you can provide for each person that you love in the ideal manner.
If you have someone in your family with special needs, you may want to make this individual more comfortable, either through an inheritance or a direct lifetime gift. When you are in this position, you have to take pause, because government benefit eligibility can enter the picture.
Everyone needs health insurance, but clearly, it is especially important for folks with disabilities. Since many people with special needs do not work, they have limited resources, and they can qualify for Medicaid as a source of health insurance.
Income is another issue for people with disabilities who cannot work. There is a government program called Supplemental Security Income that fills this gap.
Since these are need-based government programs, eligibility could be lost if a recipient was to receive a significant gift or inheritance.
The same thing would be true of a personal injury settlement. Sometimes, disabled people receive settlements or judgments after they have enrolled in need-based government benefit programs.
Special Needs Trusts
If you want to provide for someone with a disability with your personal resources, you could create a third party special needs trust. The trustee that you name in the document would be allowed to use assets in the trust to satisfy some of the beneficiary’s needs that are not being met by the government benefit programs. These expenditures would not impact ongoing benefit eligibility.
With this type of trust, there would be no reimbursement efforts from the Medicaid program after the death of the beneficiary.
It is also possible to create a first party or self-settled special needs trust. This type of trust would be funded with assets that are the property of the beneficiary. The trustee could use assets in the trust to satisfy certain unmet needs without impacting ongoing eligibility. However, Medicaid would seek reimbursement after the death of the beneficiary from assets that remain in the trust.
There are those who look at inheritance planning as an exercise in pie slicing. You hand out wedges of different sizes, and each family member eventually comes away with his or her section in hand.
This is one way to approach the process of estate planning, but you don’t have to allow for direct, lump sum inheritances if you feel as though some family members are not ready.
There are a number of different asset transfer methods that can be utilized. One possibility is the legal device called an incentive trust.
Guiding a Loved One in the Right Direction
You may have family members who are not fully developed as self-supporting adults, and there could be those that have personal problems. When these circumstances exist, an incentive trust could be utilized to provide direction.
For example, the trust trust could be used to provide educational motivation. You could state that the trustee can distribute assets to the beneficiary as long as he or she is a student in good standing at an accredited college or university.
Perhaps you could allow for a larger “reward” distribution upon graduation, and you could then state that another lump sum distribution would be forthcoming after the completion of the beneficiary’s postgraduate studies.
You may want to instill a work ethic in your younger heirs. If this is important to you, the trustee could be instructed to match the earnings of the beneficiary with funds from the trust.
Every family is not perfect, and there are good people who struggle with personal challenges. Leaving someone in this type of situation a direct inheritance with no strings attached may not be the right choice. If you are in this situation, you could use an incentive trust to guide a troubled loved one away from behavior that is personally destructive.
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If you would like to set up a consultation with an inheritance planning attorney from our firm, send us a message through our contact page or call us at 802-879-7133.