Medicaid is a health insurance program that is administered by the federal government in conjunction with each state government. To qualify for Medicaid coverage, you must be able to meet the requirements with regard to income and assets, because it is a need-based program.
As you may imagine, many people with disabilities are enrolled in the Medicaid program. It is not uncommon for someone with special needs to require care and treatment that costs millions of dollars over the course of a lifetime. Imagine how important health care insurance would be to someone in this position.
Supplemental Security Income is a government program that is often referred to by the acronym SSI. The purpose of this program is somewhat self-explanatory. SSI is a source of income for people who need it because they cannot earn much income on their own because they are disabled.
When someone becomes eligible for these government programs, the eligibility is not necessarily permanent. An improvement in financial status could change everything, because these are need-based programs. Eligibility for government benefits could be lost.
Special Needs Trusts
A special needs trust can be used to accommodate a person with a disability without causing a loss of benefits. When the trust is created, a trustee is named. The trustee would manage the assets in the trust; the beneficiary with special needs could not directly access the assets.
However, the trustee could use the assets in the trust for certain approved purposes. Because the government benefits don’t pay for everything that a beneficiary may require, the assets in the trust could be utilized to satisfy the supplemental needs of the beneficiary.
The expenditures would improve the beneficiary’s quality of life, but eligibility for Medicaid and Supplemental Security Income would remain intact.
First Party Special Needs Trusts
A first party special needs trust is a trust that is being funded with assets that are the property of the beneficiary. It must be created by a parent, a grandparent, a court order, or a legal guardian.
As we stated above, a trustee that is named in the trust declaration could use the trust’s assets to pay for goods and services that are not covered by the government benefits. This is the good news, but there is a downside.
The Medicaid program would be required to seek reimbursement from the estate after the death of the beneficiary. When a first party special needs trust has been established, assets that remain in the trust after the passing of the individual in question could be absorbed by Medicaid.
Third Party Special Needs Trusts
With a third party special needs trust, the funding is coming from someone other than the beneficiary. You could potentially fund a third party special needs trust for the benefit a disabled loved one if you wanted to improve his or her quality of life.
With a third party special needs trust, there would be no reimbursement efforts. The beneficiary’s estate would not be targeted after his or her death, and secondary beneficiary that is named in the trust agreement would assume ownership of the remainder.
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