Personalized attention is very important when you are planning your estate. You should explain your unique personal situation to your estate planning attorney, so you can be certain that you are taking the right steps to provide for your family members.
With the above in mind, we will look at third party special needs trusts in this post.
Unintended Consequences
People who have disabilities are often enrolled in the Medicaid program. This is a health insurance program that is jointly administered by the state government along with the federal government. It is only available to people who can demonstrate significant financial need.
Clearly, many people with special needs are going to require expensive care and treatment, so Medicaid coverage is essential for these individuals.
There is another government benefit program called the Supplemental Security Income program. As the name suggests, this program provides an ongoing source of income for disabled people who cannot earn much on their own. This is also a need-based program.
If you were to leave a direct inheritance to a loved one who was enrolled in these government programs, there could be unintended negative consequences. The inheritor would suddenly experience a change in financial status. As a result, eligibility for need-based government benefits could be lost.
Third Party Special Needs Trusts
You could account for the above scenario by creating a third party special needs trust. The reason why it is called a third-party trust is because the funding is coming from someone other than the beneficiary.
When you create this type of trust, you name a trustee to administer the trust, and the beneficiary would be the loved one with special needs.
The government benefits do not necessarily cover everything that the benefit recipient may need. When there is a third party special needs trust in place, the trustee can use assets in the trust for certain approved purposes. These would be needs that the government benefits are not covering.
We should emphasize the fact that the trustee handles the assets in the trust; the beneficiary cannot directly use the assets.
As long as the trustee is using the assets to satisfy the supplemental needs of the beneficiary, government benefit eligibility is not jeopardized.
With a third party special needs trust, there is no mandate with regard to Medicaid reimbursement. If the beneficiary’s funds were used to create a trust, it would be a first party or self-settled special needs trust. Under these circumstances, Medicaid would seek reimbursement after the passing of the beneficiary.
Free Special Needs Planning Consultation
If you would like to discuss special needs planning with a licensed professional, contact us through this link to request a free consultation: Davenport IA Special Needs Planning.
