Certain assets, such as life insurance, retirement accounts, joint bank accounts and jointly owned real estate, do not pass to your heirs according to your will. Instead, these assets are distributed upon your death based on beneficiary designations, which you indicate on forms that override your will. Since they are deemed non-probate property, it is important for families to review beneficiary designations yearly. This review becomes even more important when heirs with special needs are in the picture.
If a person with a disability were to inherit assets, it may make him/her ineligible for public benefits, such as Supplemental Security Income, Medicaid Health Insurance or Life Skills Training workshops. Many specialized programs for the disabled are available only to those who are eligible for Medicaid; therefore, preserving benefit eligibility may be important, regardless of a family’s financial resources.
In Pennsylvania and New Jersey, a person receiving Supplemental Security Income and Medicaid is only allowed to have financial resources of up to $2,000. The calculation of “resources” for purposes of SSI and Medicaid is complicated. In general, the government may consider cash, bank accounts, savings bonds or stocks; non-personal residence real property, or other assets that could be sold to pay for food or housing. If an individual receiving benefits were to inherit assets through a forgotten beneficiary designation, the individual would likely lose these benefits.
Medicaid will generally pay for hospital bills, physician services, and long-term care. By designating a special needs trust as the beneficiary of your assets, you can provide for the supplemental care and services a disabled loved one may need, such as accessible housing, rehabilitation services, home health aides, and assistive technology or therapies not covered by insurance.
To be considered a special needs trust, it must be established by a parent, grandparent, legal guardian or by the court. In many cases, upon the parent’s death, the parent’s will transfers the child’s inheritance to the special needs trust. The trust can also be the named beneficiary on life insurance policies, retirement plans or investment accounts. The beneficiary of the trust must be considered “permanently and totally disabled” under Supplemental Security Income criteria. Under the terms of the trust, the trustee may not be permitted to make payments or distributions that might interfere with government benefit eligibility. Generally, this prohibits the trust from giving distributions directly to the beneficiary.
Even if your beneficiary never needs federal or state public benefits, you may want to consider the special life management needs he or she may have. A well-designed special needs trust can provide supplemental care that can enhance the dignity, productivity, and comfort for your loved one. Regardless of your financial situation, preparing and executing a sound special needs trust as part of your estate plan should make more effective use of those resources.
Special needs planning can be complex. You should seek legal advice from an estate planning attorney with experience in planning for the needs of individuals with disabilities. Please contact our office to set up an appointment.