Many have family members that rely on important government benefits such as Medicaid and Supplemental Security Income (SSI). We have great intentions when we leave a portion of our estate to family members with special needs. We believe that this additional money will help alleviate some of the burden of meeting their special needs. What we don’t realize is the negative impact such a “generous” gift may have on their standard of living.

Consider this example:

Thomas is a 45-year-old disabled man living in special housing paid for by Medicaid and other government medical assistance. Thomas also receives SSI payments to cover his day-to-day needs. Both of Thomas’s parents have passed away, with Thomas being one of four siblings who will divide their parents’ estate into equal shares. Upon the estate being divided, Thomas’s share equals $50,000. For someone with limited means, this seems like a huge blessing. But there’s a catch. If Thomas accepts the $50,000 from his parents’ estate, the $50,000 counts as assets belonging to Thomas. This then disqualifies Thomas from continuing to receive both his government provided medical care and SSI payments. Thomas still has extremely limited assets, yet enough assets to disqualify him from receiving the government benefits that he desperately needs. So what should Thomas’s parents have done?

Thomas’s parents should have had a stand-by Supplemental Needs Trust (sometimes known as a Special Needs Trust) provision as part of their estate plan. This provision would protect family members with existing disabilities that rely on government benefits. It would also assist in unforeseen situations where a family member might come to rely on government benefits in the future. It is a separate trust provision within the main trust that is triggered when the trustmaker has a disabled beneficiary that relies on government benefits for their support and maintenance. That beneficiary’s share can be assigned to a Supplemental Needs Trust, effectively moving the ownership of that income out of the name of the beneficiary. This keeps that income from being counted as additional assets owned by the disabled beneficiary, which may or may not disqualify them from receiving government provided benefits that are income based. A trustee is then appointed to oversee the Supplemental Needs Trust and ensure that the trust’s provisions are adhered to. The trustee also ensures that prohibited items are not purchased with trust funds and “special needs” are paid directly to the entity or individual providing those “special needs.” In short, the Supplemental Needs Trust retains that person’s inheritance on their behalf, avoiding disqualification from their government benefits.  A qualified estate planning attorney can assist in implementing a Supplemental Needs Trust as part of your estate plan.

For additional reading on Supplemental Needs Trusts:

Supplemental Needs Trust

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