You could utilize a special needs trust to effectively provide resources for the benefit of a loved one who has a disability. Before we look at the different types of special needs trusts, we should explain a few things about government benefit eligibility.
Preservation of Benefits
People with special needs are clearly going to need medical insurance, but in many cases, they have very limited financial resources. Individuals who can demonstrate financial need can often obtain coverage through the Medicaid program.
Medicaid is a health insurance program that is jointly administered by the federal government along with each respective state government. Because eligibility is based on financial need, there are income and asset limits. If you were a benefit recipient, a direct inheritance could result in disqualification from eligibility.
Supplemental Security Income (SSI) is another government program that people with special needs often rely upon. This program is also a need-based program. It provides an ongoing source of income for people without much earning power.
An improvement in financial status could disqualify a benefit recipient from SSI eligibility.
Special Needs Trusts
Special needs trusts are used to preserve government benefit eligibility. These trusts can essentially be broken down into two categories: first party or self-settled special needs trusts, and third-party special needs trusts.
With a first party special needs trust, the beneficiary is going to fund the trust with his or her own resources. These assets could come from life insurance proceeds, a personal injury settlement, or from some other source.
The trustee could use the funds in the trust to improve the quality of the beneficiary’s life without impacting benefit eligibility. Expenditures could be made to satisfy the supplemental needs of the beneficiary. These would be things that are not covered by government benefits.
After the death of the beneficiary, the state would seek reimbursement from the beneficiary’s estate.
A third party special needs trust would be funded by someone other than the beneficiary. In the same manner, a trustee would be able to use assets that have been conveyed into the trust to satisfy the supplemental needs of the beneficiary. Benefit eligibility would not be impacted.
When a third party special needs trust is in place, there would be no reimbursement required after the passing of the beneficiary.
Free Report on Special Needs Planning
When you take the right steps, you can provide for a loved one with special needs while preserving government benefit eligibility.
However, special needs planning can be somewhat complicated. If you would like to obtain some in-depth information, download our comprehensive report.
This report will answer most of your questions, and it is being offered free of charge. To get your copy of the report, click this link and follow the simple instructions: Indianapolis IN Special Needs Planning.
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.