There are pointed strategies that can be implemented to provide for each person on your inheritance list in the ideal manner. This is well demonstrated when you look at inheritance planning for people with disabilities.
Need-Based Government Benefits
Clearly, people with these challenges are going to require expensive medical care throughout their lives. Since many of these folks are not in a position to hold jobs, they cannot get health insurance through employers. Fortunately, Medicaid exists to fill this void.
Supplemental Security Income (SSI) is another government benefit program that is self-explanatory. It provides a monthly boost to people that do not have any personal earning power.
Because these benefits are only available to people with very limited resources, you have to take pause before you leave a benefit recipient a direct inheritance. The good news is that there is a widely embraced solution.
Supplemental Needs Trust
As an alternative to a lump sum inheritance, you could convey assets into a supplemental needs or special needs trust. You would name a trustee to act as the administrator, and this can be someone that you know personally or a trust company or another professional fiduciary.
The income from SSI is very modest, and Medicaid does not cover every health care related treatment or therapy. Under the regulations that have been established by the government, the trustee would be able to use assets in the trust to satisfy the unmet needs of the trust beneficiary.
Sometimes a person that is relying on these benefits will receive a personal injury settlement or judgment or a windfall that comes from some other source. Under these circumstances, the individual or their legal representative would be able to establish a “first party” supplemental needs trust.
Everything would be the same while the beneficiary is alive, but there is a very big difference that would enter the picture after the death of the beneficiary.
Medicaid Estate Recovery
The law requires the Medicaid program to review the estates of benefit recipients after they pass away. If there is valuable property that is going to be transferred to the heirs, Medicaid can impose a lien on the property in a reimbursement action.
You cannot qualify for Medicaid if you have anything of significant value with the exception of a home, so this would usually be the only piece of property that would be in play. This dynamic is different when a first party supplemental needs trust has been established.
If you create a trust for the benefit of someone else with your personal funds, it would be looked upon as a third-party trust. When you compose the trust declaration, you would name a beneficiary to succeed the original beneficiary.
This successor would assume the beneficiary role after the death of the original beneficiary. Medicaid would not be able to seize any of the property that is held by the trust.
If the beneficiary was the original source of the funding, this would be a first party or self-settled special needs trust. Medicaid would be able to go after the remainder in a first party Supplemental Needs Trust.
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