Many people with disabilities receive their health insurance through the Medicaid program. These folks also qualify for Supplemental Security Income (SSI), which is self-explanatory. The maximum SSI benefit in 2022 is a modest $841 a month.
As estate planning attorneys, we advise clients that want to leave inheritances to people with disabilities that are relying on these benefits. Since they are only available to individuals with $2000 or less in countable assets, a direct inheritance could cause a loss of eligibility.
Supplemental Needs Trust
The solution is a legal device called a supplemental needs or special needs trust. If you use this type of trust as an estate planning tool, you name a trustee to act as the administrator. This can be a professional fiduciary, or you can designate someone that you know personally.
Under the rules of the programs, the trustee would be able to provide anything other than cash that is used to pay for food and shelter without any penalties being imposed.
This gives the trustee a great deal of latitude, and luxuries like vacations and other leisure and entertainment activities, vehicles, and paid companionship are perfectly okay. Plus, if the trustee uses assets to provide food or shelter, the benefits are not lost.
Medicaid eligibility would not be impacted all, and the maximum SSI benefit would be reduced by one third plus $20. When it comes to shelter, the beneficiary could live in a home that is owned by the trust and there would be no penalty.
Medicaid Estate Recovery
Now that we have provided a broad overview, we can focus on the matter of estate recovery. The Medicaid program is required to seek reimbursement from the estates of deceased beneficiaries.
It is possible to qualify for Medicaid as a homeowner, because a home is not a countable asset. In most cases, aside from a home, there would be next-to-nothing for Medicaid to take during the recovery phase because you can’t qualify if you have significant assets.
The dynamic is different when there are assets remaining a supplemental needs trust.
If you fund the trust for the benefit of someone else with your funds, it would be a third-party trust. When you establish the trust, you would name a successor beneficiary, and they would inherit the remainder that is left in the trust after the death of the first beneficiary.
Medicaid would not be able to touch these funds during the recovery phase.
A person with a disability will sometimes receive a personal injury settlement or judgment, life insurance proceeds, or a windfall from some other source. The assets could be used to establish a first party or self-settled supplemental needs trust.
While the beneficiary is alive, the same arrangement would exist. The trustee would be able to use the assets to make the beneficiary more comfortable in many different ways without impacting benefit eligibility.
That’s the good news, but the bad news is that the remainder would be available to Medicaid during the recovery phase after the death of the grantor/beneficiary.
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