It is important to choose the right estate planning device for each person on your inheritance list. There are many different tools in the estate planning toolkit, and so you should discuss your options with a licensed estate planning attorney if you are not sure how to proceed.
With this in mind, let’s look at inheritance planning for people with disabilities.
Need-Based Government Benefits
Obviously, people with disabilities need health insurance, but many people that are in this position cannot work. Since most Americans get coverage through their employers, this is not a very good situation. Fortunately, a solution exists in the form of Medicaid.
This jointly administered federal/state government health insurance program provides health insurance for people with special needs and others that have sparse resources. The limit on countable assets is just $2000, though some things do not count, including a home and a vehicle.
Another government benefit program that people with disabilities typically rely on is Supplemental Security Income (SSI). This is pretty self-explanatory: SSI provides a modest but steady stream of income for people that do not have much earning power.
If you want to leave an inheritance to someone that is enrolled in these benefit programs, you have to take pause. An improvement in financial status can cause a loss of eligibility, so the act of goodwill could potentially do more harm than good.
Supplemental Needs Trusts
The widely embraced solution is a legal device called a supplemental needs trust or special needs trust. These government benefits do not pay for all medical related services and treatments, and the monthly income is quite limited. A recipient is going to have additional needs, and these are looked upon as “supplemental needs” in this context.
If you were to establish and fund a special needs trust with your assets for the benefit of a person with a disability, it would be a third-party special needs trust. You would name a trustee in the document, and it can be any adult that is willing to assume the role.
However, if you are leaving the inheritance to someone that is relatively young, you have to consider longevity. Many people use a professional fiduciary such as a trust company or the trust department of a bank.
When you go this route, you can be certain everything will be done correctly in light of the benefit program regulations. There would be no longevity concerns, and income producing assets that may be in the trust would be controlled by an experienced financial expert.
The trustee would be able to use assets in the trust to enhance the quality of the beneficiary’s life in many different ways. Approved purchases include household items, electronics, vacations, transportation, some medical and dental procedures, and the list goes on and on.
Medicaid Recovery
Now that we have set the stage appropriately, we can move on to the question that serves as the title of this blog post.
Medicaid is required to seek reimbursement from the estates of people that were enrolled in the program after they pass away.
A trust that is funded by someone other than the beneficiary is a third-party trust as we have stated. The resources never belonged to the beneficiary, so Medicaid would not be able to attach any remainder that may be left in the trust during recovery efforts. It would go to a successor beneficiary that would be named in the trust agreement.
It is possible for someone with a disability to fund a special needs trust with their own money. This would be a first party or self-settled special needs trust. When this type of trust has been established, the Medicaid program could attach assets that remain in the trust after the grantor/beneficiary’s death.
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Mr. Nirenstein is licensed to practice before the courts of the State of Connecticut and the United States District Court. He is a member of the Connecticut and Hartford County Bar Associations, and the Estate and Probate, Elder Law, Business Law and Real Estate Sections of the Connecticut Bar Association.
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