You have to take pause before you leave an inheritance to someone with a disability because a direct lump sum bequest can yield negative consequences. How can this be possible? Monetary resources can only be a good thing, right? In some cases, from an estate planning perspective, a windfall may present a challenge, but a certain type of trust can provide a solution.
Government Benefit Eligibility
Obviously, people with disabilities are going to require expensive medical care over the course of their lives. Most folks in the United States get health insurance from their employers, but many individuals who are in this position do not have the ability to work.
The lack of health insurance is one part of the problem, and nobody can get by without any income. Solutions exist in the form of Medicaid and Supplemental Security Income. These are government benefits that fill these gaps to some extent.
Because they are only available to people with significant financial need, an improvement in financial status can cause a loss of eligibility. This is why you have to be careful about the way that you treat a person with a disability when you are developing your inheritance plan.
Supplemental Needs Trust
The best way to proceed would be to establish and fund a trust called the supplemental needs trust. These devices are alternately referred to as special needs trusts.
If you establish and fund a trust of this kind, you would be the grantor. In the trust declaration, you would name a trustee to act as the administrator, and the person that you want to help out would be the beneficiary.
The Supplemental Security Income payouts are modest, and Medicaid does not cover every medical treatment that a benefit recipient may want or need. Under the rules of these programs, the trustee would be allowed to use assets in the trust to satisfy the unmet or supplemental needs.
There are a wide range of different expenditures that would be approved. These would include vacations, transportation, electronic equipment, and medical and dental expenses that are not paid by Medicaid, and this just scratches the surface.
As long as all the rules are followed correctly, the beneficiary would be made much more comfortable, but benefit eligibility would not be negatively impacted.
Estate Recovery
Medicaid is required to seek reimbursement from the estates of people that were receiving this benefit while they were alive.
If you establish a third-party special needs trust with your funds for the benefit of someone else, Medicaid would not be able to go after the remainder. A successor beneficiary that you name when you establish the trust would assume the role after the death of the first beneficiary.
On the other hand, someone could establish a supplemental needs trust with their own funds. A disabled person may be in this position if they receive a personal injury lawsuit or settlement.
This would be a first-party or self-settled special needs trust. Under these circumstances, the remainder would be available to Medicaid during estate recovery efforts.
Attend an Educational Event!
We are very committed to education because there is a lot at stake when you are contemplating your legacy. In addition to the written materials that you will find on this website, we conduct seminars on an ongoing basis.
Though there is no charge, we do ask that you register in advance so we can reserve your spot. To see the dates and obtain more information, head over to our estate planning events page.
If you would rather view an on-demand webinar at your convenience, we have you covered. Simply visit this page and follow the instructions to gain access to some prerecorded webinars that will open your eyes to some important realities.
Need Help Now?
The supplemental needs trust is just one of the many tools in the toolkit. When you work with our firm, we will explain your options and help you develop a plan that is custom crafted to suit your needs.
You can call us at 888-222-1328 to schedule a consultation at our Phoenix, AZ estate planning office, and there is a contact form on this site you can use to send us a message.
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