There is no one estate plan that is ideal for each and every family. In the field of estate planning, there are many different asset transfer vehicles. The best way to transfer assets to one person on your inheritance list may not be appropriate for the next. Given this dynamic, you should make fully informed decisions, because mistakes can be made that yield negative consequences if you don’t understand all the facts.
With the above in mind, consider the situation that a person with special needs may face. Health insurance is important for all of us, and most people get health insurance through their jobs. However, it is especially important for people with special needs, and many people with disabilities cannot work.
You have probably heard of the government run health insurance program that is called Medicaid. The program is jointly administered by the federal government along with each respective state government. Medicaid eligibility is only available to people who can prove that they have a significant level of financial need. The limit on countable assets for an individual applicant is just $2000.
Let’s say that you have an adult granddaughter with special needs who is enrolled in the Medicaid program. You want to leave your granddaughter an inheritance.
If you maintain direct personal possession of your property, and you pass it along through the terms of a will, each inheritor would receive direct, lump sum inheritances. Once someone is deemed eligible for Medicaid, the eligibility is not necessarily permanent. An improvement in financial status could cause a loss of eligibility. This situation would ensue if you were to leave a significant direct inheritance to your granddaughter in your will.
Supplemental Needs Trusts
To account for this type of situation, you could make your granddaughter the beneficiary of a supplemental needs trust. These legal devices are sometimes called special needs trusts.
You would fund the trust, and you name a trustee to administer the trust. A family member or someone else that you know personally could technically act as the trustee. However, there is another option available to you.
It would be possible to retain the services of a professional fiduciary. Banks and trust companies offer trust administration services, and you gain a lot of advantages if you use a corporate trustee. There would be no conflicts of interest or time constraints, and these companies have inherit oversight built in.
Plus, to preserve Medicaid eligibility, rules and regulations must be followed correctly, and this is another reason why you may want to use a professional entity.
In addition to Medicaid, many people with disabilities rely on Supplemental Security Income, which is another need-based government program. This income is minimal, so there are going to be unmet needs. In this context, these needs are referred to as supplemental needs.
The beneficiary could not directly utilize assets that have been conveyed into the supplemental needs trust. However, the trustee could use resources in the trust to satisfy the supplemental needs that are not being met by the government benefits. Ongoing eligibility for Medicaid and SSI would not be negatively impacted as long as all of the rules were followed correctly.
If you were to establish and fund a supplemental needs trust for the benefit of a loved one, the Medicaid program would not seek reimbursement from assets that remain in the trust after the death of the first beneficiary.
Make the Right Choices
A supplemental needs trust can provide a solution for you if you want to make a loved one with a disability more comfortable without impacting government benefit eligibility. However, this is just one type of situation that can exist. A well constructed estate plan will be carefully constructed as a response to the circumstances.
For example, there are people who are concerned about lawsuits. Asset protection strategies exist, and you can protect what you have earned if you take the right steps.
Estate taxes can also enter the picture. We have a federal estate tax that high net worth families should be aware of, and here in Vermont where we practice law, we also have a state-level estate tax. If your estate is going to be exposed to taxation, there are things that you can do to ease the burden.
You can also protect a spendthrift loved one with the proper planning, and you can guide a loved one toward positive behavior or away from negative behavior when you are planning your estate.
If you would like to discuss your options with a licensed professional, our firm can help. We offer free consultations, and you can call us at (802) 879-7133 or send us a message through our contact page to set up an appointment.