The majority of people in the United States get their health insurance through their employer provided plans. Unfortunately, a high percentage of people with disabilities are not in a position to hold jobs, so this is not an option for them.
Everyone needs health insurance, but it is especially important for these folks, so the void is a big deal. Fortunately, a safety net exists in the form of the Medicaid program. It is a need-based benefit, so you can potentially qualify if you have less than $2000 in countable assets.
There is another benefit that will typically accompany Medicaid called Supplemental Security Income (SSI). As the name would indicate, this is a source of monthly cash for people that do not have the ability to support themselves financially.
Supplemental Needs Trust
If a person with a disability that is relying on these benefits was to come into money for some reason, the assets can be used to establish a supplemental needs trust. This device will alternately be referred to as the special needs trust.
A trustee would be designated when the trust is being established, and the beneficiary would not be able to assume this role. They would have no direct access to the resources in the trust, but the trustee would be able to use the assets to make them more comfortable in many ways.
Generally speaking, the only purchases that are not allowed are expenditures for food and shelter. However, the beneficiary could live in a home that is owned by the trust without violating this shelter provision due to an interpretive intricacy.
Even if assets are used for essentials that are not considered to be supplemental needs, there would not be an absolute loss of benefits. There would be no impact on Medicaid eligibility, and the maximum reduction in the SSI payout would be one third plus an additional $20.
The trustee could pay for therapy, medical and dental procedures not covered by Medicaid, vacations, a paid companion, a specially equipped vehicle, leisure and recreation expenses, and countless other goods and services.
Medicaid Estate Recovery
Now that we have provided the necessary background information, we can shift our focus to the question that serves as the title of this post.
Under the circumstances described above, the beneficiary is the source of the funding. This would be a first party or self-settled special needs trust.
Medicaid is required to seek reimbursement from the estates of beneficiaries after they pass away. In most cases, there is nothing to take, because you cannot qualify for Medicaid if you have more than $2000 in countable assets as we have touched upon.
However, the situation is entirely different when there is a remainder left in a supplemental needs trust. Medicaid would be able to attach the remainder during the Medicaid recovery phase if the decedent was the grantor/beneficiary of a first party special needs trust.
The dynamic is different if the funding comes from someone other than the beneficiary. When the trust is created, the grantor would name a successor beneficiary. After the death of the initial beneficiary, the successor would receive distributions in accordance with the grantor’s wishes.
Medicaid would not be able to access the assets that are left in the third party special needs trust. This is why you would not want to leave a direct inheritance to someone with a disability with the understanding that they can use the assets to establish a trust.
Attend a Free Seminar!
We are conducting a number of estate planning seminars over the coming weeks, and you can learn a lot if you attend one of these sessions. There is no charge, but we ask that you register in advance so we can reserve your spot.
You can see the dates if you visit our Hartford, Connecticut estate planning seminar page. When you identify the session you would like to attend, follow the instructions to register so we can reserve your spot.
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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