You are probably aware of the fact that Medicaid is a government program that provides health insurance for people with very limited financial capabilities.
Many people paint with a broad brush and say that the program is for “needy” people, but in fact, there is a bigger picture. People who may not come to mind when you think of the financially needy often rely on Medicaid.
This would include people with special needs. Without question, people with special needs are going to require medical care and treatment throughout their lives.
The majority of people get their health insurance through their jobs, and in most cases, people with significant disabilities cannot work. As a result, they have limited financial resources, and they have no access to health insurance. A very significant percentage of people with special needs qualify for Medicaid.
There are also senior citizens who were never financially needy who seek Medicaid eligibility, because the program pays for long-term care. Medicare does not pay for living assistance.
Estate Planning & Special Needs Trusts
You have to stay within an asset limit if you want to qualify for Medicaid. Things like your personal belongings and household effects are not counted, but there is a $2,000 limit on countable assets.
If a person with special needs was to qualify for Medicaid on this day based on his or her financial profile, the eligibility would not be permanently etched in stone.
So, if you were to give a direct gift to someone that you love who is relying on Medicaid, or if you were to leave this person a direct inheritance, the gift recipient would experience a change in financial status. As a result, if the person retained direct personal possession of the gift, eligibility for Medicaid would be lost.
To account for this, you could create a special needs trust for the benefit of this family member. Since someone other than the beneficiary would be funding the trust, it would be a third-party special needs trust.
The beneficiary of the trust would not be able to directly use the assets. A trustee would manage the assets in the trust. Under the rules of the program, assets in the trust could be used by the trustee to satisfy certain supplemental needs of the beneficiary. This is why these trusts are often called supplemental needs trusts.
If the trustee acted within the guidelines, Medicaid eligibility would not be interrupted.
Medicaid Recovery
The Medicaid program is jointly administered by the federal government along with each respective state government. Under federal guidelines, the states must seek recovery from the estates of people who were enrolled in the Medicaid program.
When a third-party special needs trust has been established, the assets that remain in the trust after the death of the beneficiary would not be attached by Medicaid during recovery efforts.
However, there is another type of special needs trust called a first party or self settled special needs trust. A parent, a legal guardian, or a grandparent of a person with special needs can establish this type of trust. It would be funded with assets that belong to the beneficiary.
For example, a person with a disability who is relying on Medicaid could be awarded a legal judgment. The funds could be conveyed into a first party special needs trust. The same situation would exist with regard to the trustee’s ability to use assets in the trust to make the beneficiary more comfortable throughout his or her life.
This is the good news, but the bad news is that the assets that remain in the trust after the death of the beneficiary would be subject to Medicaid recovery.
Download Our Special Report
In this brief blog post we have provided a thumbnail sketch about some very complicated matters. You should certainly go the extra mile to understand everything that you need to know about the subject if you have a loved one with special needs in your family.
If you are ready to do so, our firm can help in a couple of different ways. First of all, if you would like to educate yourself through some written material, you can download our in-depth report on special needs planning. This report is being offered free of charge, and you can access your copy through this page: Special Needs Planning Report.
We can also answer all of your questions in person if you are ready to take that step. Our firm has helped many families in the greater Indianapolis area over the years, and we can help you put a plan in place that would preserve Medicaid eligibility.
To set up a consultation, call us at (317) 684-1100 or drop us a line through our contact page.
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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