By Barry Zimmer on July 23rd, 2020 in Special Needs Planning
There is no single one-size-fits-all estate plan that is right for everyone. You can choose to utilize a number of different types of legal devices, and the ideal choice will depend upon the circumstances.
Plus, the life situation of the people on your inheritance list can call for multiple approaches. This is something to take into consideration when you are planning your estate.
Special Needs Planning
A lot of people think that a last will is always the right choice as an asset transfer vehicle unless you are very wealthy. There are a lot of reasons why this is not true, but we are going to focus on one particular aspect here.
Generally speaking, when a will is used, direct transfers would be distributed to the heirs after the probate court closes the estate. The inheritances would become their direct personal property.
This can be perfectly okay for some people, but for individuals with disabilities, a direct inheritance can yield negative consequences.
Many people with special needs rely on Medicaid as a source of health insurance. This government program is only available to folks with a significant level of financial need.
Since a lot of Americans with disabilities cannot work, they qualify for the Supplemental Security Income (SSI). Once again, this is a need-based benefit, so a person with resources would not be able to qualify.
A direct inheritance could render a benefit recipient ineligible, but there is a solution in the form of a supplemental needs trust. With this type of trust, you would name a trustee, and the beneficiary would be your loved one with a disability. The trustee can be someone that you know, and as an alternative, there are professionals that provide fiduciary services.
Under the rules of these programs, the trustee would be able to use assets in the trust to satisfy the supplemental needs of the beneficiary. A wide range of different goods and services could be attained without impacting government benefit eligibility.
Spendthrift Protections
Another situation that can be a source of concern is the possibility of a poor money manager burning through their inheritance too quickly. The solution in this case could be the utilization of a revocable living trust with a spendthrift provision.
After your death, the trustee that you name in the trust declaration would act as the administrator. The principal would be out of the reach of the creditors of the beneficiary, so this is one level of spendthrift protection.
You could also instruct the trustee to distribute limited assets over an extended period of time. The spendthrift beneficiary would not have direct access to the funds.
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If you are here, you must be interested in learning more about the estate planning process. There are hundreds of posts on this blog that cover just about every subject imaginable. In addition to the blog, there are other written resources that you can access free of charge.
One of them is our estate planning worksheet. It has been carefully prepared to convey a great deal of useful information in an easy-to-understand format. To get your copy, visit our worksheet access page and follow the simple instructions.
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