Generally speaking, a person that receives an inheritance will mourn the deceased, but they will be able to put the windfall to good use. From a financial perspective, there will be no downside.
However, sometimes an inheritance can cause problems, and we will look at a relatively common scenario in this post.
Government Benefit Eligibility
Clearly, people with disabilities need health insurance more than most. Many of these folks cannot work, so they can’t get health insurance coverage through their employers. Medicaid is available to people with financial need, so this is the widely embraced solution.
Supplemental Security Income (SSI) is a source of income for people with disabilities that do not qualify for Social Security Disability Insurance (SSDI) benefits. The SSI payouts are modest, but any income is better than no income at all.
If you leave someone with a disability a direct inheritance through the terms of a will, their financial profile will change. The asset limit for Medicaid is just $2000, so they would no longer be eligible. Clearly, this is not the best way to provide for someone that is in this position.
Supplemental Needs Trust
You can make a loved one much more comfortable without jeopardizing the benefits if you make them the beneficiary of a supplemental needs or special needs trust. When you establish and fund the trust, you name a trustee to act as the administrator.
Any adult that is willing to assume the role can technically act as the trustee, but there is another option. You could engage a trust company, the trust department of a bank, or another professional fiduciary to serve as the administrator of the trust.
If you use a qualified trustee, they will understand the rules that govern these programs as they apply to supplemental needs trusts. There would be no longevity concerns or conflicts of interest, and the assets would be handled by a financial planning professional.
The beneficiary would not directly access assets in the trust, but the trustee would be able to use them to make purchases. Direct cash payments for food and shelter are not allowed, but everything else is fair game, including things that would be defined as luxuries.
Even if resources in the trust are used to pay for food or shelter, eligibility would not be completely lost. The SSI benefit would be reduced, and the amount would depend on the extent of the expenditures.
Medicaid Estate Recovery
There is the matter of assets that remain in the trust after the death of the beneficiary. The legislature put the parameters in place, and under these guidelines, there is a Medicaid estate recovery phase. After the death of the beneficiary, the program must seek reimbursement from their estate.
Since you cannot qualify for Medicaid if you have more than $2000 in countable assets in your name, there is usually nothing remaining for them to take. Of course, the dynamic is different if a special needs trust has been established and there are assets remaining in the trust.
If you establish a special needs trust with your funds for the benefit of someone else, it would be looked upon as a third-party trust. The beneficiary never actually owned the assets, so they would not be part of their estate. After their passing, the remainder would go to a successor trustee that you name in the trust declaration.
Assets that are the property of someone with a disability could be used to fund a supplemental needs trust. The trustee could make the same types of approved expenditures without impacting benefit eligibility. However, the assets that remain in the trust after the beneficiary’s death would be available to Medicaid during recovery efforts.
Take Action Today!
As you can see, there are targeted solutions that can be implemented to facilitate effective asset transfers. The ideal way to proceed will depend on the circumstances, and this is what you should work with an attorney to develop a custom crafted plan.
If you are ready to get started, you can schedule a consultation at our Glastonbury or Westport, CT estate planning offices if you call us at 860-548-1000. There is also a contact form on this site you can fill out if you would prefer to send us a message.
Mr. Horowitz was awarded his Juris Doctor degree with honors from the University of Connecticut School of Law. While attending law school, Mr. Horowitz received the American Jurisprudence Award in Legal Ethics and the Nathan Burkan Award.
After graduation from law school, Mr. Horowitz continued his legal education at New York University School of Law where he received a Post Doctorate Law Degree in Taxation. He has also recently received a national achievement award.
Mr. Horowitz is admitted to practice before all the state courts in the State of Connecticut and the United States District Court.
Mr. Horowitz was selected for Super Lawyers in 2021.
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