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Inheritance Planning for a Loved One With a Disability

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supplemental needs trustYou should look at estate planning as a two-way street. Yes, you have to decide how you will be slicing up the pie as it were, but you should also consider the life situation of the inheritors.

There are different ways to get assets into the hands of someone after you pass away, and a method that is acceptable for one person may be disastrous for another. With this in mind, we will look at inheritance planning for people with disabilities in this post.

Need-Based Government Benefit Eligibility

In the United States, most people that are not senior citizens get their health insurance through their employers. A significant percentage of individuals with special needs are not in a position to work, so this is not an option for them.

Obviously, these folks need health care insurance, and there is a solution the form of the Medicaid program. This is a need-based federal/state government funded program that provides health insurance for people with very limited resources.

You cannot qualify if you have more than $15,900 in countable assets in your name, but a home is not considered to be a countable asset. However, there is an equity limit, and it stands at $906,000 this year.

In addition to the health care coverage that they receive through the Medicaid program, people with disabilities with limited resources can qualify for Supplemental Security Income (SSI).

Once eligibility for these programs has been granted, it is not necessarily permanent. Someone that comes into money could potentially lose their benefits, and this is something to take very seriously if you have someone with a disability on your inheritance list.

Supplemental Needs Trust

There is an ideal solution in the form of a supplemental needs trust. To implement this strategy, you fund the trust, and you name a trustee to act as the administrator. It cannot be the beneficiary, but any adult that is willing to assume the role can technically act as the trustee.

If you do not know anyone personally that would be a good candidate, you have recourse. Trust companies and the trust departments of banks provide trustee services for a fee, and this can be the right choice under some circumstances.

The government benefits are supposed to cover health care expenses, food, and shelter. This is somewhat unrealistic, because the maximum SSI payout in 2021 is $794.

Under the rules of these programs, the trustee could use the assets to provide anything other than food and shelter and there would be no penalty at all. For expenditures that are used for these necessities, there is a maximum penalty of one third of the benefit plus $20.

Medicaid Estate Recovery

Medicaid will look into the estate of a deceased beneficiary, and if they are in direct possession of valuable property, Medicaid can attach the resources. This is called the Medicaid estate recovery process.

In most cases there will be nothing for them to take with the possible exception of a home that was in the direct personal possession of the decedent.

The dynamic is somewhat different when a supplemental needs trust has been established for a person with a disability.

If the funding is coming from someone other than the beneficiary, it is a third-party trust. After the death of the first beneficiary, the successor beneficiary that is named in the trust declaration would assume the role, and the assets would be protected from Medicaid estate recovery.

A person with a disability will sometimes come into money from a personal injury settlement or judgment or from another source. The funds could be used to establish a first party or self-settled supplemental needs trust.

When a first party supplemental needs trust has been established, the remainder would be accessible to Medicaid during the recovery phase. This is why you would not want to leave a direct inheritance to someone with the idea that they could establish a self-settled trust.

Schedule a Consultation Today!

As you can see, there are different ways to approach the estate planning process, and the right course of action will depend on the circumstances. Personalized attention is key, and this is what you will receive when you choose our firm.

You can set up a consultation appointment if you call us at 332-456-0500, and you can use our contact form if you would rather send us a message.

 

Neil O'Reilly
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About Neil O'Reilly

Cornelius (“Neil”) J. O’Reilly is an attorney whose practice is focused in the areas of Estate Planning, Estate Administration, and Business Succession Planning. His main goal is to demystify Estate Planning for his clients so they can gain peace of mind knowing that they have provided for their families by passing along their hard-earned wealth and by minimizing the stress they will experience if the client becomes incapacitated or dies. He has created the firm with the belief that an estate plan should be driven by the unique needs and desires of each unique client. That’s why there are no “cookie cutter” plans or canned solutions offered to any client. Instead, Neil helps clients identify their goals and then builds estate plans based on those goals.