When you are planning your estate, you should discuss everything in detail with an estate planning attorney, because you can make mistakes that have unintended negative consequences. Your financial situation and the nature of your intentions will definitely be part of the equation. It is also important to consider the life situation of the people that are on your inheritance list.
With this in mind, we will look at the value of special needs planning in this blog post.
People With Disabilities
Many individuals with special needs rely on government benefits that are only available to people with very limited financial resources. One of them is the Medicaid program. This is a source of health care insurance, and clearly, people with disabilities are going to need ongoing medical treatment throughout their lives.
There is a low asset limit that governs Medicaid eligibility. In most states, it is just $2000, but in New York it is $15,150 at the time of this writing in 2018. It should be noted that some property is not counted, including a home if the Medicaid applicant is residing in it. However, there is an equity limit that stands at $858,000 in the Empire State at the present time.
Another need-based government benefit that many people with disabilities qualify for is Supplemental Security Income. The name is self-explanatory; this program provides a steady but modest source of income for people with challenges that do not have any earning power.
Special Needs Trusts
What can you do if you want to include someone that is enrolled in these programs in your estate plan? There is a widely embraced solution in the form of a supplemental needs trust. These vehicles are alternately referred to as special needs trusts.
If you were to establish a special needs trust for the benefit of a loved one, you would name a trustee to act as the trust administrator. Of course, the beneficiary would be the person with special needs that you want to make more comfortable.
The government benefits are not necessarily going to satisfy all of the needs of the recipient. These unmet needs are considered to be supplemental needs, and this is why the trusts that we are looking at are called supplemental needs trusts.
The beneficiary would not have direct access to assets that are contained within the trust. However, the trustee would be able to use the resources to satisfy unmet needs that are approved by the programs.
These would include vacations, transportation costs, computers and other electronic equipment, educational expenses, exercise equipment, musical instruments, dental and medical care that is not covered by Medicaid, and many other goods and services.
After the beneficiary dies, Medicaid is required to seek reimbursement from any assets that are contained within the decedent’s estate. When a third-party special needs trust has been established, the remaining assets could not be touched by Medicaid. A successor trustee that you name in the trust declaration would assume ownership of the remainder.
This being stated, sometimes a person with a disability will come into money after being enrolled in these programs. For example, they may receive a personal injury settlement or judgment. Under these circumstances, a parent, a grandparent, a court, or a legal guardian could fund a supplemental needs trust with these assets. This would be a self-settled or first party special needs trust.
When this type of trust has been established, Medicaid can attach funds that remain in it after the passing of the benefit recipient.
Attend a Free Estate Planning Workshop!
We have looked at one very specific estate planning topics here, and there are many other blog posts that you can explore to build on your knowledge. On top of the existing content, we are always adding new posts, so we encourage you to visit often. There are additional resources on this website as well, so you may want to look around and see what is available to you.
Written information is great, but there is no substitute for an opportunity to interact with an estate planning attorney in person. We are holding a number of workshops over the coming weeks, and you can learn a lot if you attend the session that fits into your schedule. They are free, but we do ask that you register in advance so that we can reserve your seat. To get all the details, click the following link: Free Estate Planning Workshops.
Michael Robinson, Estate Planning Attorney
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