It is important to understand the fact that there is no one-size-fits-all estate plan that is right for everyone. Your financial position, your family dynamic, and your objectives will be determining factors, and there are many possibilities. There is also the matter of the life situation of the people that you want to provide for in your estate plan. With this in mind, let’s take a look at the value of special needs planning.
If you would like to leave an inheritance to someone with a disability, or if you want to give a large lifetime gift, you have to take government benefit eligibility into account. Clearly, people with special needs are going to need medical care, and it can be extremely expensive. Health insurance is a must, but most individuals with disabilities do not have jobs that offer coverage.
These folks can qualify for Medicaid, which is a jointly administered federal/state government health insurance program for people with very financial limited resources. However, once eligibility has been granted, it is not necessarily permanent. A windfall would significantly change the financial profile of the benefit recipient, and the benefits could be withdrawn.
Another need-based government program that is important for many people with disabilities is Supplemental Security Income (SSI). This is somewhat self-explanatory: SSI provides a modest stream of income for people that do not have the ability to earn money because of their challenges. Once again, this benefit can be lost if a recipient was to come into money.
Supplemental Needs Trusts
There is a widely embraced solution to the scenario we outlined above in the form of the supplemental needs trust. These vehicles are alternately referred to as supplemental needs trusts. When you establish this type of trust, you would convey funds into it and name a trustee to handle the administration tasks. The loved one that you want to provide for would be the beneficiary of the special needs trust.
Medicaid and Supplemental Security Income are typically not going to be enough to satisfy all of the needs of an individual with special needs. Under program rules, the trustee could use assets that are in the trust to satisfy certain unmet needs. These are called supplemental needs, and this is why the trust is called a supplemental needs trust. We should emphasize the fact that the beneficiary would not have direct access to resources that are contained within the trust.
The trustee could provide things like computers, other electronic devices, exercise equipment, books, appliances, cameras, musical instruments, pets and pet supplies, and many other items. Educational expenses can be paid with the trust’s assets, and dental work that is not covered by Medicaid, elective surgery, specialists that Medicaid will not pay for, and rehabilitation costs could be absorbed by the trust. Services can be paid for as well, including transportation, repairs, home improvements, housecleaning services, and others.
Medicaid Recovery Efforts
Medicaid is required to seek reimbursement from the estates of people that were enrolled in the program after they pass away. There may well be assets remaining in a third party special needs trust after the death of the beneficiary. However, they are protected from Medicaid recovery efforts. A successor trustee that is named in the trust declaration would assume ownership of the remainder.
It is possible for a parent, a grandparent, a court, or a guardian to use assets that are the direct personal property of a person with a disability to establish a self-settled or first party special needs trust. The situation would be the same with regard to the trustee’s ability to use assets in the trust to satisfy supplemental needs. However, after the passing of the beneficiary, the assets would be available for Medicaid reimbursement.
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