On the surface, inheritance planning can seem like an exercise in deciding how to split up a pie into slices that will be distributed among your heirs in the same manner. In fact, there is another facet to consider. There is a give, and there is a take, so you should think about the life situation of each person your inheritance list.
You do not necessarily have to utilize the same asset transfer method to get bequests into the hands of each respective person. The right course of action for one individual may not be optimal for the next, and this is very relevant when it comes to people with disabilities.
Need-Based Government Benefits
Medicaid is a jointly administered federal/state government program that provides health insurance for folks with very limited financial resources. Since it is a need-based program, there is an asset limit of just $2000. It should be noted that some things are not countable, but we will look at the details in a different blog post.
Clearly, a very significant percentage of people with disabilities rely on Medicaid as a much needed source of health insurance. A loss of benefit eligibility could be very problematic if not catastrophic.
Another government benefit that people with disabilities often rely upon is Supplemental Security Income (SSI). As the name would indicate, this program provides monthly income to people that are not capable of earning money on their own because of the limitations that they have.
Once an applicant has been approved for either one or both of these programs, the eligibility is not necessarily permanently etched in stone. A large financial windfall could change the dynamic and cause a loss of eligibility for need-based government benefits.
This is an important piece of information and it is something to keep in mind if you have a person with a disability on your inheritance list.
Supplemental Needs Trusts
To account for the above, you could establish a supplemental needs trust for the benefit of a loved one with a disability. This would be an irrevocable trust that cannot be dissolved after it has been created, and the beneficiary would have no direct access to the principal.
Under the rules of these benefit programs, the trustee that you name in the document would be empowered to use resources in the trust to make purchases that improve the life of the beneficiary.
There are dozens of different possibilities, including payment of tuition, medical expenses not covered by Medicaid, transportation costs, vacations, computers and other electronics, etc.
As long as everything is done in accordance with the rules that have been set forth by the government, eligibility for these benefits would not be negatively impacted.
Medicaid Estate Recovery
After the death of a person that was using Medicaid as a source of health insurance, the program is required to seek reimbursement from their estate. If you establish a trust for the benefit of a loved one with your funds, assets that remain in the trust after the beneficiary’s passing would be protected during Medicaid estate recovery efforts. They would be transferred to a successor beneficiary that you would name in the trust declaration.
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