Estate planning is not necessarily a matter of slicing up a pie into different pieces as you distribute lump sum inheritances to your family members. If you want to plan your estate in the optimal manner, you should consider the personal situation of everyone that you love. There are different ways to facilitate asset transfers, and what is right for one person may not be right for the next.
For example, consider the situation that a person with a disability may be in. Many individuals with disabilities rely on Medicaid. This is a jointly administered federal/state government health insurance program. Clearly, health insurance is important for everyone, but it is even more important for people with special needs.
Medicaid is a program that is only available to people who have very limited financial resources. Since many people with disabilities cannot earn much income, they can qualify for Medicaid coverage.
There is another government program that people with special needs often rely upon called Supplemental Security Income. As the name would suggest, this program provides income for people with disabilities who have little to no earning power.
Eligibility for these programs is not necessarily permanent. A change in financial status could result in a loss of benefit eligibility, and this is something to take into consideration when you are planning your estate if you have someone with special needs in the family.
Special Needs Trust
If you want to provide resources for a loved one with special needs who is relying on need-based government benefit programs, you could make this individual the beneficiary of a supplemental needs trust. These trusts are sometimes referred to as special needs trusts.
When you establish and fund a supplemental needs trust for the benefit of someone else, it is called a third party special needs trust. In the trust declaration, you name a trustee to handle the trust administration tasks. It is possible to name an individual, but you could alternately utilize a professional fiduciary like a trust company or the trust section of a bank.
Medicaid and Supplemental Security Income are not going to provide everything that the beneficiary may need. The needs that are not being met by the programs are referred to as supplemental needs, and this is why the trusts are called supplemental needs trusts.
Under the rules of the programs, the trustee can use assets that have been conveyed into the trust to satisfy these unmet needs. We should emphasize the fact that the beneficiary cannot directly spend money in the trust, but the trustee can use the assets to improve the beneficiary’s quality of life in certain ways.
As long as the trustee acts within the guidelines, ongoing eligibility for Medicaid and Supplemental Security Income would not be impacted.
After the death of the beneficiary, the Medicaid program would not be able to attach the assets that remain in the trust during reimbursement efforts.
It is also possible for a parent, a grandparent, or a legal guardian to use assets that are the property of the beneficiary to create a first party or self-settled special needs trust. The assets could come from a personal injury settlement, life insurance proceeds, or from some other source.
With a first party special needs trust, the same situation would exist with regard to the ability of the trustee to satisfy the supplemental needs the beneficiary. However, Medicaid would be able to seek reimbursement from assets that remain in the trust after the beneficiary’s death.
This is why you would want to establish a third-party special needs trust for the benefit of loved one if you want to help out. Yes, a special needs trust trust can be established with assets that are the property of the beneficiary, but the Medicaid recovery factor enters the picture.
Attend a Free Seminar
Unfortunately, a very significant percentage of American adults are completely unprepared from an estate planning perspective. Many of them simply do not know where to begin, and they don’t want to start off with a full-blown consultation with an estate planning attorney.
We understand this perspective, and we offer solutions on an ongoing basis. To provide educational opportunities to people in and around Naples and Fort Myers, we offer estate planning seminars. These sessions are free, and they are very informative.
If you are interested, you will be able to find a session that fits into your schedule, because we offer different starting times and we present seminars in different locations. Visit our seminar schedule page to get all the details.