Estate planning is a crucial step in ensuring your loved ones are well taken care of, especially those with disabilities. One tool that offers distinct advantages in such situations is the supplemental needs trust.
Let’s delve into how this trust works and its unique benefits, particularly when it comes to Medicaid estate recovery.
What Is a Supplemental Needs Trust?
A supplemental needs trust is designed to provide for the needs of a person with a disability. This trust holds assets for the beneficiary, allowing them to maintain eligibility for government benefits like Medicaid and Supplemental Security Income (SSI). The trustee has discretion over fund disbursements, ensuring they’re used for the beneficiary’s extra needs.
Preserve Government Benefits
One of the major advantages of this trust is the preservation of need-based government benefits. Because the assets in the trust aren’t counted as the beneficiary’s own, they don’t disqualify him or her from Medicaid or SSI. This is crucial for someone who relies on these benefits for basic health and welfare.
Maintain Quality of Life
Beyond the basics covered by government programs, the supplemental needs trust can finance additional items or services. Think of things like travel, education, or specialized equipment. It enhances the beneficiary’s quality of life without jeopardizing essential benefits.
Provide Long-Term Financial Security
Setting up a supplemental needs trust provides peace of mind that your loved one will have financial support long after you’re gone. The trustee you appoint will manage the trust according to your instructions, ensuring a long-term care solution.
Medicaid Estate Recovery and Asset Protection
Now, let’s turn our attention to a crucial aspect: Medicaid estate recovery. Normally, after the death of a Medicaid recipient, the state tries to recover the cost of benefits provided. However, assets in a third-party supplemental needs trust are not subject to Medicaid estate recovery.
Protected Assets Pass to Successor Beneficiary
If you establish a third-party trust (meaning you fund the trust with assets that never belonged to the disabled beneficiary), any remaining assets in the trust are protected from Medicaid estate recovery efforts after the beneficiary’s death. These remaining assets can then be distributed to successor beneficiaries, as stipulated in the trust document.
For example, let’s say you have two children, Alice, who has a disability, and Bob, who is quite a bit younger. You set up a supplemental needs trust for Alice, funded with your own assets. After Alice’s death, the remaining trust assets are not subject to Medicaid estate recovery, and they pass directly to Bob or another successor beneficiary you’ve designated.
Points to Consider
Like all estate planning tools, the supplemental needs trust isn’t a one-size-fits-all solution. Each trust must be carefully crafted to meet the unique needs of the beneficiary. Additionally, a well-managed trust requires a reliable and competent trustee, often a family member or a professional with relevant experience.
A supplemental needs trust stands as a highly beneficial tool for providing for a loved one with a disability. It preserves crucial government benefits while effectively improving the quality of life for the beneficiary. And when it comes to Medicaid estate recovery, a properly structured third-party supplemental needs trust protects the remaining assets for successor beneficiaries.
Take Action Today!
If you would like to work with a Phoenix, Arizona estate planning lawyer to establish a supplemental needs trust or create an estate plan with a different focus, we can help.
You can schedule a consultation appointment by calling us at 888-222-1328, and you can use our contact form to send us a message.
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