Preserve Benefits With a Supplemental Needs Trust

When you plan your estate, you are naturally going to evaluate the assets that you have to pass along to your loved ones and decide how to go about doing it. On the other side of the coin, it is also important to consider the life situation of each person on your inheritance list. With this in mind, we will look at the value of supplemental needs trusts in this blog post.

Need-Based Benefits

If there is someone with special needs that you would like to provide for in your estate plan, you have to consider government benefit eligibility. Most people that are living with disabilities use Medicaid as a source of health insurance. Since it is only available to individuals with limited resources, there is an asset ceiling of $2000.

Another government benefit many people with special needs rely upon is Supplemental Security Income. As the name suggests, SSI provides a modest monthly benefit to people that have no earning power. Once again, eligibility is based on financial need.

Clearly, a significant improvement in financial status, such as the receipt of a direct inheritance, could cause a loss of eligibility for these much-needed government benefits. Fortunately, there is an estate planning strategy that can be implemented to address situations like these.

Supplemental Needs Trusts

Instead of giving your loved one with special needs a direct bequest, you can convey assets into a supplemental needs trust. When you establish the trust declaration, you name a trustee to act as the administrator.

The government benefits are not going to satisfy all of the needs of the recipient. Under program rules, the trustee can utilize assets that have been conveyed into the trust to make the beneficiary more comfortable in many different ways. As long as the rules are followed correctly, eligibility for government benefits would not be impacted.

Medicaid Estate Recovery

The Medicaid program is required to seek reimbursement from the estates of people that were enrolled during their lifetimes. If you were to establish a supplemental needs trust for the benefit of someone else, it would be a third-party trust. As a result, Medicaid would not be able to attach assets that remain in the trust after the passing of the beneficiary.

In the trust declaration, you would name a successor beneficiary. This individual or entity would assume ownership of assets that remain in the trust after the first beneficiary’s death.

It is also possible for a parent, a grandparent, a guardian, or a court to establish a supplemental needs trust with assets that are technically the property of the disabled individual if the disabled individual is incapable of creating the trust for himself or herself. This situation can sometimes arise when a person receives a lawsuit settlement or judgment or an outright inheritance.

This is called a first party or self-settled special needs trust. When this type of trust has been established, the trustee can still use assets in the trust to satisfy the supplemental needs of the beneficiary. One major difference is the fact that the assets remaining in the trust after the Medicaid recipient dies would be subject to estate recovery.

Download Our Estate Planning Worksheet

We have carefully prepared a very effective estate planning worksheet that you can use to gain an understanding of your current level of preparedness and the steps that you must take to fill in the gaps.

This worksheet gets a lot of positive feedback from everyone that uses it, and we are offering it free of charge at the present time. To obtain your copy, visit our worksheet download page and follow the simple instructions.

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Our doors are open if you would like to get serious about your estate planning efforts. You can send us a message to request a consultation appointment right now, and we can be reached by phone at 704-944-3245 in North Carolina (Charlotte, NC and Huntersville, NC), and the number for our Kentucky office is 606-324-5516 (Ashland, KY) or (859) 372-6655 (Florence, KY).