Estate Planning | Making a Difference One Family at a Time

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special needs planningWhen you have a family member with special needs, estate planning takes on an extra layer of complexity. You want to make sure your loved one has the financial resources they need, but you also don’t want to jeopardize their access to vital benefits like Medicaid and SSI.

A supplemental needs trust could be the solution you’re looking for under these circumstances. Let’s dive into the nuts and bolts of this special needs planning tool, including how it interacts with the Medicaid estate recovery rules.

What Is a Supplemental Needs Trust?

A supplemental needs trust is specifically designed to hold assets for a beneficiary with special needs. The trust supplements what government benefits provide, without disqualifying the beneficiary from receiving those benefits.

In essence, it can pay for the “extras” in life that Medicaid and SSI don’t cover, thereby improving the beneficiary’s quality of life.

What Is Medicaid Estate Recovery?

Before discussing the implications of different types of supplemental needs trusts, you have to understand Medicaid estate recovery.

After a Medicaid recipient passes away, the state is compelled to try to recoup some or all of the benefits paid to that individual during their lifetime. They do this by making claims against the estate of the deceased. This process is known as Medicaid estate recovery.

First-Party vs. Third-Party Trusts and Medicaid Estate Recovery

Now that you understand Medicaid estate recovery, let’s talk about how it affects first-party and third-party supplemental needs trusts.

First-Party Trusts

In a first-party trust, the assets initially belong to the individual with special needs. These could come from an inheritance, a legal settlement, or personal savings.

The critical factor to note is that a first-party trust is subject to Medicaid estate recovery. This means that after the beneficiary passes away, the state can claim remaining assets in the trust to reimburse itself for the Medicaid benefits provided.

Third-Party Trusts

A third-party supplemental needs trust is funded by someone other than the beneficiary – typically parents, grandparents, or other family members. Because the assets never belonged to the beneficiary, they are not subject to Medicaid estate recovery. This is why a third-party trust is the ideal special needs planning instrument.

Approved Expenditures: Keeping Benefits Safe

Trustees have the essential task of managing trust assets effectively. They must be vigilant and disburse funds in ways that don’t risk the beneficiary’s eligibility for public benefits. Here are some expenditure categories generally considered safe:

  1. Medical Expenses: Costs not covered by Medicaid can be paid from the trust.
  2. Education: This includes tuition fees, books, and other education-related expenses not covered publicly.
  3. Transportation: Whether it’s a car payment or public transportation costs, the trust can usually cover it.
  4. Personal Care: This can encompass anything from specialized caregiving to therapeutic activities.

By understanding how a supplemental needs trust works and how it interacts with Medicaid estate recovery, you can make informed decisions that protect your loved one’s financial future.

Attend a Complimentary Seminar!

We urge you to look around our website because we have a treasure trove of information that will raise your awareness. In addition, we conduct complimentary seminars on an ongoing basis, and this is the ideal way to make an initial connection with our firm.

There is no charge to attend these events, but we ask that you register in advance so we can reserve your spot. You can see the dates and obtain registration information by visiting this page:  CT Estate Planning Seminars.

Need Help Now?

If you have already decided that you would like to work with an attorney to develop a plan, we can help. You can schedule a consultation at our Glastonbury or Westport, CT estate planning offices by calling us at 860-548-1000.

There is also a contact form on this site you can use to send us a message.

Barry D. Horowitz, Estate Planning Attorney
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