It is difficult to lose a loved one, even if they have lived a long and full life. An inheritance is not going to ease the emotional pain, but the resources will be a final act of giving that is highly appreciated.
This is the general dynamic in most families, but there are some exceptions to the rule. Sometimes, an inheritance can actually cause a problem, and we will look at one of these scenarios in this post.
Most people with health insurance that are not old enough to qualify for Medicare get their coverage through their employers. A high percentage of individuals with disabilities are not in a position to work, so this avenue is not available to them.
Obviously, a person with special needs is going to require medical care that is very expensive, so health insurance is a must. Fortunately, we have a safety net in the United States in the form of Medicaid coverage, and many folks with disabilities qualify for Medicaid.
This is a need-based program that is administered by the federal government along with the state government. In Ohio and most other states in the union, there is $2000 asset limit.
Supplemental Security Income (SSI) is available to people with disabilities that qualify for Medicaid. The maximum SSI benefit in 2022 is $841, so it is modest, but every little bit helps.
If a person that is relying on these benefits was to receive a significant inheritance, eligibility would be lost if they maintain possession of the resources. This is why you should take pause before you leave a direct inheritance to someone with a disability.
Supplemental Needs Trust
A supplemental needs trust can provide a solution if you want to make a loved one with a disability more comfortable without doing any harm. To implement this strategy, you would name a trustee to administer the trust, and the person in question would be the beneficiary.
Any competent adult be a trustee, and this would include you as the grantor, but we are looking at this from an estate planning perspective. You will not be in around to administer the trust, so you have to empower someone else to assume the role.
If you do not know anyone personally that would be a suitable candidate, there is another option. Trust companies, the trust departments of banks, and other financial professionals provide trustee services. There is a fee involved, but competent management can be worth the investment.
Under the benefit guidelines, the trustee cannot provide direct cash payments for food and shelter, but any other type of expenditure is permissible. They can provide a specially equipped motor vehicle, electronic equipment, musical instruments, training, vacations, transportation, and countless other goods and services.
There is a Medicaid estate recovery requirement. After the death of the beneficiary, the program will attempt to gain reimbursement from assets that are part of their estate. This would potentially include the remainder that is left in a supplemental needs trust.
Since the assets that remain in the trust are not the property of the beneficiary, Medicaid would not be able to attach those resources. A successor trustee that you name when you establish the trust would inherit the remainder after the passing of the initial beneficiary.
Assets that belong to a person with special needs that is enrolled in these programs can be conveyed into a supplemental needs trust. The trustee would be able to utilize the resources in the same manner to make the beneficiary more comfortable in innumerable ways.
However, there is a major difference between a trust that has been funded by a third party and a first party or self-settled supplemental needs trust. Assets that remain in a first party trust after the death of the beneficiary could be attached by Medicaid during the recovery phase.
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As you can see, you can utilize targeted solutions to provide for everyone on your inheritance list in the ideal manner. As a layperson, you would not be aware of all the options that exist, and this is why legal counsel is invaluable.
If you are ready to work with a Cincinnati estate planning lawyer to put a custom crafted plan in place, send us a message or give us a call at 513-721-1513.