Special Needs Planning: Preserve Government Benefits
There are many ways to facilitate the transfer of assets after your death. When making decisions, you should also consider the life circumstances of the people you want to inherit from. With this in mind, let’s take a look at a very effective special needs planning solution.
Need-Based Government Benefits
Most people that are not yet senior citizens who have health insurance in the United States get it through their jobs. Since a lot of folks with disabilities cannot work, this presents a challenge, and they certainly need coverage to address their medical bills.
Fortunately, the Medicaid program is in place to assist these individuals. The Medicaid program is a health insurance program based on need. Beneficiaries with disabilities are usually eligible for Supplemental Security income (SSI). If a beneficiary receives money, they can lose their eligibility. This is something to take seriously if you will be leaving an inheritance to someone who relies on these benefits.
Supplemental Needs Trust
If you would like to provide for a loved one with a disability in your estate plan, you could establish a supplemental needs trust. These vehicles are sometimes referred to as “special needs trusts,” and the terms can be used interchangeably.
First, you establish and fund the trust, and you name a trustee to administer it. As the grantor, you could also be the trustee, but that doesn’t make sense from an estate planning perspective.
Any mentally competent adult who is willing to assume the role can legally act as a trustee. There are also professional fiduciaries like banks and trust companies that provide trust administration services.
Under the rules of these programs, the trustee can use the assets to satisfy the unmet needs of the beneficiary. Since the beneficiary never actually owned the assets directly, the existence of the trust would not impact benefit eligibility.
Medicaid Estate Recovery
A windfall could cause a loss of benefit eligibility, but there is recourse if a benefit recipient enjoys a significant uptick in their financial profile. The resources could be used for a supplemental trust. Medicaid is required to recover funds from beneficiaries who have died. This is called the Medicaid estate recovery process.
Since you cannot qualify for the benefit if you have significant resources, there is usually nothing for them to attach. However, this dynamic is different when a supplemental needs trust has been established.
If the trust was funded by the beneficiary, the remaining assets would be in play during the recovery phase. If the funding was provided by a third-party, the remaining assets are protected. They would go to a successor beneficiary that is named in the trust declaration.
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