Before we answer the question that serves as the theme of this post, we have to provide some necessary background information to help you understand the context.
Most Americans get health insurance through their employers. Unfortunately, many people with disabilities are not in a position to work because of their challenges. Since employer-based coverage is not an option, and they do not have the ability to earn income, they qualify for Medicaid.
Individuals with special needs that gain eligibility for Medicaid can also receive Supplemental Security Income (SSI). This benefit provides a monthly source of income for people that do not have any personal earning power.
Clearly, these benefits are lifelines for folks that are in this position. A loss of eligibility is really not an option. Unfortunately, this could happen if a benefit recipient were to come into money. For this reason, you should take pause before you leave a direct inheritance to a person with a disability.
Supplemental Needs Trust
The commonly embraced estate planning solution is a supplemental needs or special needs trust. Medicaid benefits do not provide everything that a recipient may want or need. For example, it does not cover every type of dental, medical, and therapeutic procedure, and SSI payouts are very modest.
Under program rules, the trustee of a supplemental needs trust would be able to use the resources to satisfy these unmet needs. To be clear, the beneficiary would not be able to touch the principal. The trustee would be the only entity that could directly access funds in the trust.
Ongoing benefit eligibility would not be impacted as long as the trustee follows all the rules correctly.
If you want to establish a supplemental needs trust, and you don’t know an individual that has the ability to act as the trustee, trust companies and the trust departments of banks can provide this service.
From a legal and procedural standpoint, the best way to set up a special needs trust is with the assistance of legal counsel. We understand the guidelines thoroughly, so we are well positioned to help you set up this type of trust.
Medicaid Estate Recovery
The Medicaid program is required to seek reimbursement from the estates of people that were enrolled in the program while they were living.
Since you cannot qualify if you have significant assets in your own name, there is usually nothing there for them to take with the possible exception of a home.
When a special needs trust has been established, the situation is different. There may well be a remainder after the death of the beneficiary.
If you establish a special needs trust with your funds for the benefit of another person, it would be a third-party trust. When you create and fund the trust, you would name a successor beneficiary to assume the role after the death of the first beneficiary.
When the initial beneficiary passes, Medicaid would not be able to place a lien on the property in the trust. The remainder would go to a successor beneficiary.
In some cases, a person with a disability will receive a personal injury settlement or judgment or receive a windfall for some other reason. Under these circumstances, the funds could be used to establish a first party or self-settled special needs trust.
During the life of the person that established the trust, the trustee would be able to use assets in the trust to make the individual more comfortable in many ways. It would be the same as it is for a third-party trust beneficiary.
However, there is one major difference. After the death of the trust creator/beneficiary, Medicaid would be able to attach funds that remain in the trust.
We Are Here to Help!
We know that a lot of people procrastinate when it comes to estate planning. This is usually because they feel uncomfortable speaking about personal matters with an attorney they have just met. This is understandable, but we apply the golden rule when we interact with our clients.
Our attorneys and team members sincerely care about our neighbors, and you will feel this genuine commitment as soon as you walk through our doors.
If you are ready to schedule a consultation at our Oklahoma City estate planning office, we can be reached by phone at 405-843-6100. We also have a contact form on this site you can use if you would prefer to send us a message.
After helping his own family deal with a lengthy probate and the IRS following his father’s untimely death in a farm accident, Larry Parman made a decision to help families create effective estate plans designed to reduce taxes, minimize legal interference with the transfer of assets to one’s heirs, and protect his clients’ assets from predators and creditors.