One of the major reasons why it is important to discuss your estate planning goals with a licensed attorney is because you have many options. The right course of action for one family may not be appropriate for the next.
This is true when a single estate planning device is being used to provide for everyone, but the customization does not stop there.
In some instances, the optimal course of action will be to use a different type of asset transfer vehicle for a particular person on your inheritance list. We will provide a couple of examples in this blog post.
Special Needs Planning
It can seem as though anyone that receives a nice lump sum inheritance is always going to welcome it, but believe it or not, there is at least one exception. People with special needs often rely on Medicaid as a source of health insurance. Supplemental Security Income (SSI) is another need-based benefit that a lot of people with disabilities receive.
A direct inheritance could cause a loss of benefit eligibility. To respond to this dynamic, you could establish a supplemental needs trust if you want to provide for a loved one with a disability.
The government benefit programs do not satisfy all of the wants and needs of a recipient. Under the rules that govern Medicaid and SSI, the trustee of the trust can use assets in it to make the beneficiary more comfortable in many ways. As long as everything is done in accordance with the guidelines, benefit eligibility would not be impacted.
We should point out the fact that assets that are the direct personal property of a benefit recipient could be used to establish a special needs trust. This would be a first party or self-settled trust.
That’s the good news, but the bad news is that, with a first party Supplemental Needs Trust, Medicaid would be able to attach any funds that remain in the trust after the death of the beneficiary.
If you fund the trust for the benefit of someone else, it would be a third-party trust, and the remainder would be protected. After the death of the first beneficiary, a successor beneficiary that you name in the trust declaration would assume ownership of the remaining funds.
Another situation that is quite common is the matter of providing for a loved one that is not good with money. One way to approach this would be to utilize a revocable living trust with a spendthrift provision.
The principal would not be within reach of the beneficiary’s creditors, and this is one level of protection. After your death, the trust would become irrevocable, and the beneficiary would not have direct access to the principal.
In the trust declaration, you can instruct the trustee to distribute the assets in any way that you choose. For example, you could allow for monthly distributions of the earnings that are generated by assets in the trust. If you choose to do so, you can instruct the trustee to begin to distribute larger lump sums when the beneficiary reaches certain age thresholds.
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