People with disabilities often rely on Medicaid as a source of health insurance, and Supplemental Security Income provides a bit of cash each month. They are eligible to receive these benefits because they have very limited financial resources.
You cannot qualify for Medicaid if you have more than $2000 in countable assets. If someone that is relying on these benefits was to come into money for some reason, eligibility could be lost. This complicates inheritance planning for people with disabilities.
Fortunately, a solution exists in the form of the supplemental needs trust, which is often called a special needs trust.
Supplemental Security Income is extremely modest, and Medicaid does not cover every medical, dental, and therapeutic procedure. As a result, a benefit recipient is going to have many unmet needs.
If you want to provide for a loved one with a disability when you are creating your estate plan, you can establish a supplemental needs trust. You fund the trust and you name a trustee to act as the administrator. The trustee would be able to use assets in the trust to satisfy these unmet needs, and eligibility for the benefits would remain intact.
Medicaid Estate Recovery
Now that we have set the stage appropriately, we can get to the question that serves as the title of this post. It is true that Medicaid is required to seek reimbursement from the estates of Medicaid benefit recipients after they pass away. This is called Medicaid estate recovery.
In most cases, there is nothing to take, because you cannot qualify for Medicaid in the first place if you have significant resources (with one exception that we will not get into here). However, the dynamic is different when there is a supplemental needs trust in play.
If you establish this type of trust for the benefit of someone else with your own funds, it would be a third-party supplemental needs trust. In the trust declaration, you would name a successor beneficiary. This individual would become the beneficiary after the death of the original beneficiary.
Medicaid would not be able to stand in the way of this transfer. The assets would be protected.
In some cases, a person with a disability will be in that position because they were injured in a serious accident that was someone else’s fault. Eventually, they may receive a lawsuit settlement or judgment.
Those funds could be used to establish a supplemental needs trust. The scenario would be the same with regard to the ability of the trustee to satisfy the supplemental needs of the grantor/beneficiary.
Since the beneficiary’s funds were used to establish the trust, it would be a first party or self-settled special needs trust. Medicaid would be able to attach assets that remain in this type of trust.
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