Your Inheritance Plan Can Protect Benefits

One of the primary reasons why it is important to discuss your inheritance planning options with a licensed attorney is because there are many ways to go about it. The ideal course of action for one person may not be appropriate for the next, and this is true on multiple levels.

The nature of your assets and the overall objectives will certainly enter the picture when you are devising an inheritance plan, but it is not just about your own situation. You should also consider the potential impact that an inheritance will have on each individual who will be included.

With this in mind, let’s look at the value of supplemental needs trusts.

Medicaid and Supplemental Security Income

Medicaid is a government health insurance program that is intended for people with very limited financial resources. It acts as a lifeline for tens of millions of Americans, and a significant percentage of them have disabilities. A loss of benefits would be difficult for anyone, but it can be truly devastating for a person with special needs.

Another government benefit that people with disabilities often relied upon is Supplemental Security Income (SSI). People who qualify receive a monthly benefit they can use to help them make ends meet. Although it is modest, as they say, every little bit helps.

Because it is a need-based program, the asset limit for Medicaid and Supplemental Security Income eligibility is just $2000. There are some forms of property that do not count, like a home, an automobile, household items, and personal effects. Still, this is a very low threshold. A significant direct inheritance could cause a loss of eligibility.

Supplemental Needs Trust

How do you address this situation? You could establish a supplemental needs trust to make a loved one more comfortable without jeopardizing eligibility for need-based government benefits. These legal devices are also called special needs trusts.

To implement this strategy, you fund the trust, which would be irrevocable, so you can’t change your mind and dissolve the trust after it has been created (although you can also fund the trust at your death). As the grantor of the trust, you would name a trustee to act as the trust administrator.

Because of the benefit eligibility implications, you have to be absolutely certain that the individual or entity that will act as the trustee will be prepared to follow the rules to the letter. There can also be complicated financial planning and record-keeping responsibilities.

If you do not personally know anyone that would be a suitable trustee, you could use a professional fiduciary such as a trust company or the trust department of a bank.

As we have stated, Supplemental Security Income benefits are quite modest, and Medicaid does not cover every possible health care expense. Under the guidelines of these programs, the trustee of a special needs trust would be able to use the assets to satisfy the unmet needs of the beneficiary. As long as everything is done properly, benefits would not be impacted.

If you establish and fund the trust with your own money, it would be a third-party special needs trust. Medicaid is required to seek reimbursement from the estates of benefit recipients after they pass on. However, assets that remain in a third-party supplemental needs trust would be protected during estate recovery efforts.

A parent, a grandparent, a legal guardian, or a court could use assets that are the property of the disabled beneficiary to establish a first party or self-settled special needs trust. The bad news is that Medicaid would be able to go after money that remains in this type of trust after the grantor/beneficiary’s death.

Attend a Free Seminar!

Our estate planning attorneys are going to be holding a series of informative seminars over the coming weeks. They are chock-full of very useful information, so we urge you to attend the session that fits into your schedule. To get all the details, visit our seminar page and click on the date that works for you.