When you think about estate planning, you may focus on the preparation of assets for distribution to your heirs. This is one thing to take into consideration, but you should also consider the personal situation of each respective heir.
There are various different ways to transfer assets, and the optimal vehicle or vehicles will vary depending on the circumstances. You should act in a fully informed manner to avoid mistakes that could yield unintended negative consequences.
With the above in mind, we will look at special needs trusts in this blog post.
Need-Based Government Health Insurance
Many people with disabilities require medical care and treatment that can cost millions of dollars over the course of a lifetime. Health insurance is important for everyone, but it is absolutely essential for people with special needs.
Most of us get health insurance coverage through our employers, but a significant percentage of people with disabilities cannot work. As a result, they must look elsewhere for health insurance. For many individuals with special needs, the solution is Medicaid.
Medicaid is a government run health insurance program. It is jointly administered by the federal government along with each state government. The program is not automatically available to people with disabilities.
To qualify for Medicaid, you must be able to demonstrate a significant level of financial need. Even if you are disabled, if you have a reasonable store of financial resources, you will not qualify for Medicaid coverage.
Once someone has been deemed eligible for Medicaid coverage, the eligibility is not necessarily permanent. An improvement in financial status could result in a loss of benefits, and this is something to take into consideration if you want to assist a loved one who has special needs.
Supplemental Security Income
Supplemental Security Income (SSI) is another need-based government benefit program. It provides income for people with disabilities who cannot earn income on their own.
The same situation exists with regard to SSI. If a benefit recipient was to come into some money, benefit eligibility could be forfeited.
Special Needs Trusts
If you wanted to set aside resources for the benefit of a loved one with a disability without jeopardizing government benefit eligibility, you could create a special needs trust. These trusts are sometimes called supplemental needs trusts.
The way that it works is you fund the trust, and you name the person that you want to help as the beneficiary. You also name a trustee to administer the trust when you are creating the trust declaration.
Government benefits cover certain needs, but they do not cover everything. The gaps are called supplemental needs. Under program rules, the trustee can use assets that have been conveyed into the trust to satisfy these supplemental needs. As long as the expenditures are for approved purposes, benefit eligibility is not impacted.
If you fund the trust for the benefit of a loved one with special needs, it is called a third party special needs trust. When a third party special needs trust has been established, the Medicaid program cannot seek reimbursement from assets that remain in the trust after the passing of the beneficiary.
Sometimes a person with special needs will come into some money through the receipt of a personal injury settlement or judgment or a life insurance policy. Under these circumstances, a legal guardian, a parent, or a grandparent could use these assets to fund a self settled or first party supplemental needs trust.
The same situation would exist with regard to the ability of the trustee to use assets in the trust to satisfy the beneficiary’s supplemental needs. However, assets that remain in the trust after the death of the beneficiary could be absorbed during Medicaid recovery efforts.
Schedule a Consultation
We have provided a very basic explanation in this blog post. If you want to set aside resources to assist a loved one with special needs, you should certainly discuss everything in detail with a licensed estate planning attorney, because the rules are complex.
If you are ready to get started, we are here to help. We offer no obligation consultations, and we would be glad to answer any questions that you may have about supplemental needs trusts and special needs planning.
You can ultimately emerge from the interaction with a solidly constructed plan in place that provides for your loved one with special needs ideally. At the same time, you can also make sure that the other people on your inheritance list are appropriately provided for after your passing.
To schedule a consultation, call us at (317) 684-1100 or send us a message through our contact page.
Paul A. Kraft, Estate Planning Attorney
Mr. Kraft assists clients primarily in the areas of estate planning and administration, Medicaid planning, federal and state taxation, real estate and corporate law, bringing the added perspective of an accounting background to his work.
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