A special needs trust can make the life of a person with a disability much more comfortable, and the trustee has wide latitude with regard to the nature of the expenditures. We will provide the details here, but first, we will share an overview to provide context.
Need-Based Benefits
Clearly, people with physical or cognitive challenges can need expensive healthcare throughout their lives. Most Americans get health insurance through their employers, but many of these folks are unable to work so that is not an option.
Medicaid is one solution, and people with disabilities who qualify for Supplemental Security Income (SSI) also receive Medicaid. Once they become eligible, it is not necessarily permanent. An improvement in financial status could cause a loss of benefits.
This is an issue that is front and center if you want to leave an inheritance to someone with a disability who is relying on these programs.
Special Needs Trusts
Now you can see why an advanced strategy must be implemented, and it will revolve around a special needs trust. These devices are alternately referred to as supplemental needs trusts.
The anatomy of the trust involves the grantor, the trustee, and the beneficiary. If you establish and fund the trust, you would be the grantor, and you would name a trustee to act as the administrator. Of course, the beneficiary would be the person that you want to assist.
Any adult who is willing to assume the role can act as the trustee from a legal perspective, but you have to consider longevity and financial management capabilities. If you do not know anyone who would fit the bill, you can use a trust company or another professional fiduciary.
It should be noted that a person with a disability who comes into money may be able to establish a supplemental needs trust. The beneficiary would not be able to act as the trustee, but there is a reason (discussed below) why this arrangement should be avoided if possible.
Approved Expenditures
The trustee can use the assets in the trust to make a beneficiary more comfortable in many different ways. Generally speaking, the trustee cannot provide cash for the beneficiary to use to purchase essentials, but the guidelines give the trustee a great deal of leeway.
Even though these are need-based programs, a home is not a countable asset so the trustee could actually purchase a home for the beneficiary. The trustee could also provide a motor vehicle that is specially equipped to suit the needs of the individual in question.
The trustee could pay for tuition and training, computers, other types of electronic equipment, vacations, transportation, recreation, and medical, dental, and therapeutic services not covered by Medicaid. These are just a handful of the goods and services that could be provided.
Medicaid Estate Recovery
As we have touched upon, assets that are the property of a person with a disability could be used to fund a special needs trust. This would be a first-party or self-settled trust.
Medicaid is required to seek reimbursement from the estates of people that were enrolled in the program while they were living. This is called Medicaid estate recovery. Under federal law, assets that remain in a first-party trust after the death of the beneficiary must be used to reimburse Medicaid for expenses it has paid on behalf of the individual.
If you establish a third-party trust with your funds for the benefit of someone else, you would name a successor beneficiary in the trust declaration. After the death of the original beneficiary, the successor would become the new beneficiary, and Medicaid would be out of the picture.
Schedule a Consultation Today!
As you can see from this post, there are solutions to address a wide variety of estate planning objectives. but most people are not aware of their options.
This is why it is important to work with an attorney from our firm to put a plan in place. We will gain an understanding of your situation and help you create a plan that is custom crafted to ideally suit your needs.
You can schedule a consultation at our Charlotte, North Carolina or Huntersville, North Carolina estate planning office if you call us at 704-944-3245. The number in Ashland, Kentucky is 606-324-5516, and the number in Florence, Kentucky is 859-372-6655. You can also use our contact form if you would rather send us a message.
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