When you plan your estate, you facilitate future asset transfers to those that you love. There are numerous different ways that you can provide resources for your family members. You should explore all of your options, because assumptions can lead to costly mistakes.
For example, many people decide that they will use a last will to facilitate future asset transfers. You simply state your wishes regarding the slices of a pie, and all of your loved ones will be provided for appropriately.
This is not always going to be the right way to go. Different family members are going to have different needs. You should take this into account when you are planning your estate. It is possible to provide for each person on your inheritance list in the optimal manner.
With this in mind, we will look at the value of special needs trusts in this blog post.
Government Benefit Eligibility
Many people with disabilities rely on Medicaid to pay for costly medical care and treatment. Medicaid is a government health insurance program that is available to people who can demonstrate significant financial need.
Depending on the disability in question, a lifetime of care can cost millions of dollars. Medicaid eligibility can be extremely valuable to people who have special needs.
Supplemental Security Income is another government program. This program provides an ongoing source of income for people with disabilities who cannot earn significant income on their own. This is also a very important benefit for special needs individuals.
Because these are need-based benefit programs, there are asset and income limits, and they are very modest. A significant improvement in financial status could change everything for a benefit recipient. A sudden financial windfall could result in a loss of benefits.
Let’s say that you have a family member with a disability on your inheritance list. You decide to use a last will to slice up the proverbial pie. When your loved one receives his or her direct inheritance, benefit eligibility could be lost.
Special Needs Trusts
If you want to provide for a loved one with special needs without impacting government benefit eligibility, you could make this individual the beneficiary of a special needs trust. These trusts are sometimes referred to as supplemental needs trusts.
When you create the special needs trust, you name a trustee to handle the trust administration tasks. The person that you want to provide for would be the beneficiary of the trust. It should be noted that the beneficiary cannot act as the trustee.
Medicaid and SSI benefits are not necessarily going to cover all of the beneficiary’s needs. Under government regulations, the trustee can utilize assets that have been conveyed into the trust to satisfy the supplemental needs of the beneficiary. These are defined as needs that are not being met by the government benefits.
These expenditures do not impact government benefit eligibility. The benefit recipient can go on utilizing the benefits as usual, but his or her quality of life will be improved.
We should emphasize the fact that the trustee has exclusive control of the trust; the beneficiary cannot handle the funds or make direct purchases using assets that have been placed into the trust.
The Medicaid program is jointly administered by the federal government along with the state government. According to federal guidelines, the states are required to seek reimbursement from the estates of benefit recipients after they pass away.
This raises an interesting question: Are assets in a special needs trusts in play? The answer is that it depends on the circumstances. If you fund a special needs trust for the benefit of another person, this would be a third-party special needs trust. Medicaid would not be able to attach anything that remains in a third-party special needs trust after the death of the beneficiary.
However, sometimes a person with special needs who is enrolled in government benefit programs will come into money through a personal injury judgment or settlement or a life insurance policy. Under these circumstances, a parent, a grandparent, a legal guardian, or a court could use the assets to establish a first party special needs trust.
Assets in this type of trust could be absorbed by Medicaid during recovery efforts.
Attend a Free Seminar
We have covered one specific estate planning topic in this brief blog post. If you would like to gain a comprehensive understanding of the process, attend one of our seminars.
The seminars are free, and you can visit this page to see the schedule: NJ Estate Planning Seminars.
Alan Augulis, Estate Planning Attorney
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