If you are going to leave an inheritance to someone with a disability, you would do well to discuss the situation with our attorney. We have a great deal of expertise in this area, and we would be more than glad to gain an understanding of your situation and advise you appropriately.
Legal counsel is extremely important under these circumstances, because a great deal can be lost if mistakes are made.
What are these potential losses? One of them would be a forfeiture of health care insurance. Many individuals with disabilities rely on Medicaid, which is a jointly administered federal/state government health insurance program for people with very limited financial resources.
If you were to leave an inheritance to someone with special needs that is relying on Medicaid coverage, the eligibility could be lost.
Obviously, most folks with special needs are not in a position to earn income. As a response, there is a program in place called Supplemental Security Income or SSI. Once again, if someone who is relying on this income was to receive a windfall via an inheritance, the stream could dry up.
Special Needs Trusts
Fortunately, there is a widely embraced estate planning solution. If you want to help out a loved one with a disability without jeopardizing eligibility for these government benefits, you could convey assets into a supplemental needs trust. These legal instruments are sometimes called special needs trusts.
You would name a trustee to administer the trust, and the loved one with a disability that you want to provide for would be the beneficiary. After you fund the trust, the trustee would be able to use the assets to satisfy the supplemental needs of the beneficiary.
There are countless different products and services that could be purchased by the trustee to enhance the life of the beneficiary.
For example, Medicaid pays for certain health care related expenses, but not everything. Assets in the trust could be used to pay for medical and dental treatments that are not covered by the Medicaid program, including elective surgery and emotional and mental counseling.
The expenditures can extend into areas that have nothing to do with health care. The trustee can use assets in the trust to pay for school tuition, other types of training, vacations, exercise equipment, electronics, transportation expenses, and many things that the beneficiary may want or need.
Under Medicaid rules, the program is required to seek reimbursement from assets that may remain in the estate of a deceased person who was enrolled in the program during his or her life.
However, if you were to establish and fund the trust with your resources for the benefit of a person with a disability, it would be a third-party special needs trust. Under the laws governing Medicaid recovery, assets that remain in this type of trust would be out of play.
Ownership of the resources would be assumed by a secondary trustee that you name when you establish the trust declaration.
Sometimes a person with a disability that is relying on Medicaid and SSI will receive an inheritance left by someone that is not aware of the potential loss of eligibility. In other instances, a benefit recipient will receive a personal injury settlement or judgment.
Under these circumstances, a first party or self-settled special needs trust could be established with the funds, and benefit eligibility would be retained. The same rules would apply with regard to the ability of the trustee to satisfy the supplemental needs of the beneficiary.
The major difference is the fact that Medicaid would be able to seek reimbursement from assets that remain in the trust after the death of the settlor/beneficiary.
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