There are numerous different ways to facilitate postmortem asset transfers. You should explore all of your options when you are devising an estate plan so you can provide for each person on your inheritance list in the ideal fashion.
Different people in your family are going to be in different life situations, and you should give the matter careful consideration. If you act in an uninformed manner, you could make mistakes that result in negative consequences.
With the above in mind, we will look at Medicaid eligibility and special needs trusts in this blog post.
People With Special Needs
You may have a family member with special needs. Many people with disabilities are enrolled in the Medicaid program. Medicaid is a health insurance program that is jointly administered by the federal government along with each respective state government.
Clearly, people with disabilities are going to need health care insurance, and many of them cannot earn income, so they have very limited financial resources. Medicaid is a need-based program so it is available to people who can demonstrate financial need.
When someone applies for Medicaid coverage, the program is going to look at a snapshot of the present. However, if you have a family member who is qualified for Medicaid based on his or her financial profile at a given time, that eligibility is not necessarily going to be permanent.
Medicaid can deem a benefit recipient ineligible if a change in financial status were to take place. If you gave a large gift to someone who is enrolled in the Medicaid program, the act of generosity could result in a loss of coverage.
The same thing is true of an inheritance. A significant direct inheritance could render a benefit recipient ineligible because the financial need would no longer be there, at least temporarily.
Supplemental Security Income is another need-based government program that many people with disabilities rely upon. As you can see from the name, this program provides a basic source of income for people with special needs who cannot earn income on their own. The same dynamic applies to Supplemental Security Income. If a qualified recipient were to come into some money, benefit eligibility could be disrupted.
Medicaid Eligibility and Special Needs Trusts
You could address the scenario that we laid out above through the creation of a special needs trust. If the funding is coming from someone other than the beneficiary, the trust would be a third party special needs trust.
When you create the trust agreement, you name a trustee. The trustee administers the trust, and the beneficiary cannot directly control the actions of the trust. Expenditures must be made by the trustee.
Under the rules of these benefit programs, the trustee could use assets in the trust to improve the quality of life of the beneficiary. These expenditures would be limited to the satisfaction of needs that are not being met by the government benefits.
Essentially, supplemental needs would be anything other than food and shelter. For example, the trustee could use assets in the trust to provide things like education, recreation, dental care, computer equipment, books, etc.
The beneficiary would ultimately be more comfortable, but benefit eligibility would not be impacted.
There is another type of special needs trust called a first party or self-settled special needs trust. This type of trust is created with funds that are the property of the beneficiary. The funds may have come from a personal injury settlement or judgment or an insurance policy.
The trustee could use the funds to satisfy the unmet needs of the beneficiary, and benefit eligibility would not be lost, but there is one big difference between the two types of special needs trusts.
When a self-settled special needs trust has been created, the Medicaid program would seek reimbursement from the beneficiary’s estate after his or her death.
With a third party special needs trust, there would be no reimbursement attempts after the death of the beneficiary.
Schedule a No Obligation Consultation
As you can see, it takes careful and informed planning to provide for a person with special needs in the optimal manner. However, if you take the right steps, you can improve a loved one’s quality of life without doing any harm in the process.
Our firm can help if you would like to discuss special needs planning with a licensed estate planning attorney. You can send us a message through our contact page if you would like to set up a consultation, or you can simply give us a call at (704) 944-3245.
John’s practice focuses on the use of Wills and Living Trusts in Estate Planning to help individuals protect their families and preserve their legacies after their deaths, but his practice also focuses on the critical issues of protecting individuals with dementia or other diminished capacity, assisting individuals in qualifying for Medicaid and other government benefits to offset the costs of long-term care, and providing special needs planning.
John is admitted to practice law in North Carolina, South Carolina, Kentucky, and Ohio, and he is accredited by the Department of Veterans Affairs.
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