A supplemental needs trust is an estate planning device that can be used to provide an inheritance to someone with a disability. Before we explain the ways that the trust can benefit an individual that is in this position, we will share a general overview to provide context.
Need-Based Benefit Eligibility
Most people with disabilities in the United States receive health insurance through the Medicaid program, and they receive modest financial support via Supplemental Security Income. These are need-based programs, so you cannot qualify if you have significant assets in your name.
If you want to leave an inheritance to someone who is relying on these benefits, you have to tap the brakes. A windfall of money would change the individual’s financial profile, and they could lose their need-based government benefits.
Supplemental Needs Trust
Now that we have provided the necessary background information, we can start to examine the details. You could establish and fund a supplemental needs trust to provide an inheritance for a loved one who is eligible for Medicaid and Supplemental Security Income.
When you establish the trust, you would name a trustee to act as the administrator. Many people use a professional fiduciary like a trust company or the trust department bank. This being stated, any mentally competent adult who is willing to assume the role can technically act as the trustee.
If you use a professional, you can be sure that the trust will be administered properly in light of the demands of these government programs. Plus, if there are appreciable assets in the trust, qualified financial management is a very good thing.
The beneficiary would not have direct access to the resources in the trust, and technically, the trustee is not supposed to use the assets to provide “essentials.” However, the assets can be used to satisfy the supplemental needs of the beneficiary.
These would include everything from education and tuition to vacations, a home, a specially equipped van, electronic devices, training, and a paid companion, just to name a handful of the expenditures that would be approved.
As long as the rules are followed correctly, ongoing eligibility for Medicaid and Supplemental Security Income would not be impacted.
Medicaid Estate Recovery
The Medicaid program must seek reimbursement from the estates of beneficiaries after they pass away. Since it is a need-based program, there is usually nothing to take with the possible exception of a home, since a place of residence is a not a countable asset.
Of course, the dynamic is different with a supplemental needs trust, because there could be a remainder in the trust after the death of the beneficiary.
If you establish a third-party trust with your funds, you name a successor beneficiary in the trust declaration. After the passing of the initial beneficiary, the successor would become the beneficiary, and Medicaid would not be able to touch the assets in the trust.
Resources that are the property of a person with a disability that is enrolled in these programs could be used to establish a first party supplemental needs trust. The trustee would have the same latitude to use the resources to make the beneficiary more comfortable in many ways.
However, there is one major difference. The assets that remain in the trust after the death of the individual in question would be available to Medicaid during the recovery phase.
Schedule a Consultation!
If you are ready to work with a Phoenix, AZ estate planning attorney to put a plan in place, we are here to help. You can send us a message to request a consultation appointment, and we can be reached by phone at 888-222-1328.
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