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There are certain situations that call for the utilization of advanced estate planning techniques. One of them is the facilitation of postmortem asset transfers to people with disabilities. This is what special needs planning is all about.
Why can’t you just leave an inheritance to someone with a disability in a will?
You can do this, but there is a reason to take pause. Most people with disabilities are enrolled in the Medicaid program, and of course, health insurance is particularly important for these folks.
Since a lot of people with disabilities do not have much earning power, they qualify for Supplemental Security Income (SSI) as well.
If a person was to receive a direct inheritance through the terms of a will, they would be in a different financial situation. As a result, there could be a loss of need-based benefit eligibility. This is why you would not want to leave a direct inheritance to someone that is in this position.
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The widely embraced solution is a legal device called a supplemental needs trust. They are alternately referred to as special needs trusts, because they benefit people with special needs.
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You fund the trust and name a trustee to act as the administrator. Any adult can act as the trustee, even the person that is establishing the trust.
However, if you are using the trust for estate planning purposes, you would not be around to administer the trust. If you know someone that is fully capable and willing, this is an option, and there are professional fiduciaries that offer trustee services for a fee.
Medicaid does not cover every medical, dental, and therapeutic treatment that someone may want or need, and the maximum SSI benefit is about $800 a month. There will certainly be unmet needs, and the trustee can use the assets in the trust to satisfy them.
There would be no forfeiture of benefit eligibility as long as everything is done within the rules.
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The funds in the trust are supposed to supplement the government benefits with the understanding that they are in place to cover essentials like food, clothing, and shelter.
In fact, the minuscule monthly SSI payments will not cover these necessities, but there is a loophole.
The trustee could pay the store and/or the landlord for food and shelter without giving the cash to the beneficiary. There would be a penalty that would reduce the benefit by as much as one third, but this can be a good trade-off in many instances.
When it comes to goods and services that are not under the “essential” umbrella, the trustee has very wide latitude. They can pay for vacations, a companion, a vehicle, tuition, computers and other electronic equipment, healthcare procedures not covered by Medicaid, and on and on.
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Medicaid is required to seek reimbursement from the estates of people that were enrolled in the program while they were alive.
If you establish a supplemental needs trust for the benefit of someone else with your funds, it would be a third party trust. Medicaid would not be able to touch the remainder after the beneficiary’s death.
A successor you name when you create the trust declaration would become the beneficiary.
It is possible for a person with a disability to use their own funds to establish a supplemental needs trust. Under these circumstances, the remainder would not be protected during the Medicaid recovery phase.
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We are here to help if you are ready to work with an Indiana estate planning attorney to put a plan in place. You can send us a message to request a consultation appointment, and we can be reached by phone at 219-865-2285.
