The answer is yes, of course, there is nothing to prevent you from leaving a direct inheritance to a loved one with physical or mental challenges through the terms of a last will. However, before you make this decision, you should gain a more complete understanding of the dynamic.
The vast majority of Americans with disabilities rely on government benefits that are only available to people that can demonstrate significant levels of financial need. One of them is Medicaid, which is a source of health care insurance.
Obviously, this is particularly important for people that are going to need expensive ongoing care and treatment throughout their lives. Supplemental Security Income (SSI) is another need-based program that is often part of the equation. As the name would indicate, this benefit provides a modest but steady stream of income for disabled folks that have no ability to earn money.
A significant change of financial status via a bequest or some other windfall would render a benefit recipient ineligible until the assets have been exhausted. This is why you should explore strategies that can be implemented to provide help without doing any harm in the process.
There is a legal device called a special needs or supplemental needs trust that is recommended by estate planning attorneys when these circumstances exist. The way that it works is you fund the trust, and you name a trustee to act as the administrator.
Medicaid and Supplemental Security Income do not necessarily satisfy all of the needs of the benefit recipient. The trustee would be able to use assets in the trust to take care of these needs that are not being met by the government programs without violating any rules.
This is a very good question, and the answer to it covers an important aspect that you have to understand to fully grasp the total concept. If you establish a special needs trust for the benefit of someone else with your funds, it would be a third-party special needs trust.
In the trust declaration, you would name a successor beneficiary that would assume ownership of assets that remain in the trust after the passing of the first beneficiary.
The Medicaid program is required by law to seek reimbursement from the estates of people that pass away after having been enrolled in the program. The assets that remain in a special needs trust that was funded by a third-party cannot be touched by Medicaid, so they would make no recovery efforts.
This being stated, it is possible for a parent, a grandparent, a legal guardian, or a court to use funds that are the property of the beneficiary to establish a special needs trust in their behalf. In legal parlance, this would be a self-settled or first party special needs trust.
Everything would be the same with regard to the ability of the trustee to utilize trust assets to make the beneficiary more comfortable in certain ways. That’s the good news, but there is some bad news as well. Any remainder that is left in the trust after the death of the beneficiary would be fair game for Medicaid during the estate recovery phase.
This is why you would not want to leave a direct inheritance to a benefit recipient, even though it is possible to create a special needs trust after the fact.
Any adult that is of sound mind that is willing to assume the role can technically serve as the trustee. This being stated, there are certain qualities that the trustee should possess.
The person should be completely trustworthy and have good money management abilities. Anticipated longevity should be taken into account along with the ability to understand Medicaid and SSI rules and regulations. It can be a time-consuming task, and this is another consideration.
You could choose to arrange for a professional fiduciary like the trust department of a bank or a trust company to serve as the administrator of the special needs trust. If you go in this direction, you can be absolutely certain that the trust will be administered properly.
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