You should discuss your estate planning objectives with an attorney because there are solutions that you may not be aware of as a layperson. There are many tools in the kit, and there is usually going to be an ideal way to address any challenging situation.
This applies to the matter of special needs planning, and we will look at the details in this post.
Medi-Cal and Supplemental Security Income
The majority of people in the United States get health insurance through their employers. A significant percentage of people with disabilities are not in a position to hold jobs, so this is not an option. Fortunately, a solution exists in the form of Medi-Cal, so these folks have the coverage they need.
People with disabilities that qualify for Medi-Cal will typically receive Supplemental Security Income (SSI) as well. This is self-explanatory to a large extent. It provides a modest amount of income for people that do not have much earning power. The maximum monthly SSI payout in 2022 is $841 for an individual, so it is minimal, but every little bit helps.
Medi-Cal is only available to people with less than $2000 in countable assets. When you add that to the mix, you can see that a direct inheritance would change the financial profile of the beneficiary. This can lead to a loss of benefits, and this is why careful planning is necessary.
Special Needs Trust
There is a legal device called a special needs trust that can be used if you want to leave an inheritance to someone that is in this situation. You name a trustee to act as the administrator, and you could be the trustee will your living, but we are looking at this in an estate planning context.
Under the circumstances, you would name a trustee other than yourself, and this can be someone that you know personally. Another option is a professional fiduciary such as a trust company the trust department of a bank, or another qualified entity.
After the trust has been established and funded, the beneficiary would have no direct access to the assets that are held by the trust. However, the trustee could use the assets to provide anything that the beneficiary may want or need except direct payments are used to pay for food or shelter.
At the end of the day, the assets in the trust will greatly improve the beneficiary’s quality of life. They can go on vacations, enjoy leisure activities, pursue an education, and get around in a specially equipped vehicle. All the while, government benefit eligibility would not be impacted.
Medi-Cal Estate Recovery
Assets that are the direct personal property of a Medi-Cal beneficiary with a disability can be used to establish a living trust. The reason why you should establish the trust with your funds and property is to protect the remainder from Medi-Cal estate recovery.
After the death of the beneficiary, Medi-Cal is required to seek reimbursement from their estate. There would usually be nothing for them to take because you can’t qualify for Medi-Cal if you have significant resources. The dynamic is different if a special needs trust has been established.
When you use your resources to create a special needs trust for the benefit of someone else, it is considered to be a third-party trust. Under these circumstances, the beneficiary never had any control over the assets. As a result, they are not part of their estate when they die, so the assets would go to a successor beneficiary that you name in the trust agreement.
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