In a general sense, you should definitely act in a fully informed manner when you are making estate planning decisions. People sometimes make assumptions, and unintended negative consequences can result.
Let’s say that you have someone with special needs on your inheritance list. You decide that you are going to utilize a last will to facilitate the transfer of your personally held assets. You have heard of trusts, but you assume that trusts are only useful for extremely wealthy people.
In your last will, you leave a direct inheritance to the family member who has a disability. This person is enrolled in the Medicaid program. Medicaid is a need-based, government run health insurance program.
The individual in question is also receiving much-needed income from the Supplemental Security Income program. This program is also available to people who can demonstrate significant financial need.
Under this hypothetical scenario, when you pass away, the benefit recipient would receive a direct inheritance. All of a sudden, there would be a significant change in financial status. Medicaid and Supplemental Security Income are only available to people who are financially needy. As a result, benefit eligibility could be lost.
Supplemental Needs Trust
You could go in a different direction if you want to provide for a family member with special needs. A supplemental needs trust can be utilized to improve the quality of life of a government benefit recipient.
With this type of trust you name the heir that you want to provide for as the beneficiary, and you name a trustee to administer the trust. The beneficiary cannot directly handle the assets that have been conveyed into the trust, but the trustee can use the trust’s assets to provide for the supplemental needs of the beneficiary.
What are supplemental needs? These would be needs that are not being met by the government benefits.
When you create a supplemental needs trust for the benefit of a loved one with a disability, you get the best of both worlds as it were. You improve this individual’s quality of life, but you do not jeopardize government benefit eligibility.
Free Report on Special Needs Planning
In this post we have scratched the surface. If you would like to obtain some in-depth information about supplemental needs trusts, we have a great resource that you can tap into free of charge.
Our firm has prepared a special report on supplemental needs trusts. To obtain your copy of the report, click this link: Rochester Special Needs Planning.
Latest posts by Michael Robinson, Estate Planning Attorney (see all)
- Pet Planning Questions Answered - January 30, 2020
- Reasons an Estate Plan Could Be Challenged: Part 4 – Lack of Testamentary Capacity - January 29, 2020
- Life Insurance for Succession Planning and Inheritance Balancing - January 28, 2020