By Barry Zimmer on June 29th, 2021 in Special Needs Planning
Most people in the United States get health insurance through their employers, but many individuals with special needs cannot enter the workforce, so this is not an option. They definitely need health insurance, and fortunately, there is a safety net in the form of Medicaid.
This is a need-based program, so you cannot qualify for Medicaid if you have more than $2000 in countable assets in your name. Supplemental Security Income (SSI) is another government benefit that provides income for people with disabilities that cannot work.
Inheritance Planning Implications
Since these benefits are only available to people with limited financial resources, how can you leave an inheritance to someone that is relying on them?
There is an advanced estate planning approach that can be taken under these circumstances. You could convey assets into a special needs trust to help someone with a disability without impacting their benefit eligibility.
Approved Expenditures
Now that we have provided the necessary background information, we can address the question that serves as the title of this post. If you establish a special needs trust, you name a trustee to act as the administrator, and the person you want to help out would be the beneficiary.
The trustee can be someone that you know personally that has the time and the financial acumen to handle the position, but there is another option. Professional fiduciaries provide trustee services for a fee, and this can be the right choice under some circumstances.
Technically, the government benefits are supposed to cover necessities like food, shelter, and clothing. This being stated, the maximum SSI payment in 2021 is $794 a month, so that is not going to go very far.
In any event, under the guidelines, the trustee can use the assets in the trust to supplement the government benefits. There are countless different goods and services that can be provided by the trustee without breaking any rules, and this is a partial list:
- Home
- Motor vehicle with or without modifications
- Vacations
- Computers and other electronic equipment
- Training and tuition
- Healthcare-related treatments not covered by Medicaid
- Transportation
- Paid companionship
- Appliances and household items
- Insurance and final expenses
First Party vs. Third Party Special Needs Trust
If a person with a disability comes into money after they are receiving these benefits, the resources can be used to fund a first party or self-settled special needs trust. The details would be the same with regard to the trustee’s ability to make the beneficiary more comfortable.
However, there is the matter of Medicaid estate recovery. The program is required to seek reimbursement from the estates of beneficiaries after they pass away.
Assets that remain in a first party special needs trust would be available when Medicaid is seeking reimbursement.
The remainder that is left in a third party trust that is funded by someone other than the beneficiary would be protected during the Medicaid recovery phase. A successor beneficiary would be named in the trust declaration, and they would become the active beneficiary.
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