It is natural to think of estate planning from the perspective of the person that will be leaving the inheritances. The whole idea is to decide how you will distribute your resources among the people that you love, right?
In reality, this is only half of the picture. The other half is to consider the life situation of the family members on the inheritance list.
This is one of the reasons why you should discuss your situation with an estate planning attorney, because there are different ways to transfer assets. A method that may be perfectly suitable for one person may not be the right choice for the next.
People With Disabilities
One situation that fits the description above is the matter of leaving an inheritance to someone with a disability. Many people with special needs rely on Medicaid as a source of health care insurance. Supplemental Security Income is another government benefit that can make life more manageable.
These are need-based benefits, so there are strict income and asset limits. An improvement in financial status could cause a loss of eligibility. This is why you have to take a different approach when you are leaving resources to a person with special needs.
Supplemental Needs Trusts
The solution is the estate planning tool called a supplemental needs trust. To implement this approach, you fund the trust and you name a trustee to act as the administrator. This can be someone that you know personally, but many people use a trust company or the trust department of a bank.
There are a number of benefits if you use a professional. First, there would be no longevity concerns, and the assets would be properly managed. Perhaps most importantly, the benefit programs have strict rules. An experienced trustee would know how to follow them to the letter.
Though the beneficiary of the trust would not have direct access to the funds, the trustee would be able to use the resources to make the beneficiary more comfortable in many ways. There is a long list of goods and services that can be provided, and there are few limitations.
As long as everything is done correctly, ongoing government benefit eligibility would not be impacted. This is the ideal way to provide for a family member without doing any harm in the process.
Medicaid Estate Recovery
Medicaid is required to seek reimbursement from the estates of people that were enrolled in the program when they were living. Since it is only available to people with financial need, these efforts are usually not very successful, but there are some exceptions.
If you establish a supplemental needs trust with your property for the benefit of someone else, it would be a third-party trust. When you create the trust declaration, you would name a successor beneficiary. After the death of the first beneficiary, the successor would step into the role.
Medicaid would not be able to touch assets in a third-party supplemental needs trust.
On the other hand, let’s say that a person with a disability who was enrolled in the Medicaid program receives a personal injury lawsuit settlement or judgment. Those funds could be used to establish a first party or self-settled supplemental needs trust.
All of the details would be the same with regard to the ability of the trustee to use the assets to satisfy the unmet needs of the beneficiary. However, these resources would be available to Medicaid during the recovery stage.
Need Help Now?
Estate planning is all about protecting the people that you love, and as you can see, there are different ways to go about it. This is why personalized attention is important, because every family is unique, and there is no one-size-fits-all estate plan.
If you would like us to help you put a custom crafted plan in place, we are here to help. You can send us a message to request a consultation appointment, and we can be reached by phone at 248-251-1001.