Leaving money and property to a family member or other loved one is an act of kindness and concern, intended to make the beneficiary’s life easier or more enjoyable. Unfortunately, for some of the people who are most in need, an inheritance can do more harm than good.

Public Benefits and Inheritance

Many individuals with disabilities are dependent on public benefits for medical coverage. Often, there are large, ongoing medical expenses. Managing conditions such as HIV, hemophilia, certain mental illnesses, and even diabetes may cost tens of thousands of dollars each year. While it may seem that an influx of cash would assist a person in this situation, it may do more harm than good.

The inheritance may disqualify the disabled person from the public benefits programs that have been providing medical care, but not provide adequate funds to pay medical expenses directly. In some cases, a recipient of public benefits who comes into money through an inheritance may be required to pay back the state for past care, wiping out the bequest. Even declining the inheritance won’t necessarily solve the problem, as that decision may itself disqualify a recipient from some public benefits.

These pitfalls are the same whether the inheritance passes pursuant to a will or through intestate succession, so it isn’t enough to refrain from making a specific bequest to the person with special needs. Informed decision-making is required to protect your legacy and your loved one. While excluding the disabled relative from your will may solve the public benefits problem, you may be able to provide for your loved one without jeopardizing critical benefits.

Special Needs Trusts

A special needs trust allows a benefactor to provide for some of the needs of a disabled person without jeopardizing benefits such as Medicaid and Supplemental Security Income (SSI). However, such a trust must be carefully constructed to ensure that it does not interfere with eligibility. For example, if a trust is to benefit the individual without putting eligibility at risk, the trust must be structured so that it does not:

  • Allow the beneficiary access to the assets of the trust
  • Entitle the beneficiary to income from the trust
  • Provide for payment of certain living expenses, including food and shelter

While this sounds quite restrictive, the trust may provide support to the beneficiary in many ways. In fact, a special needs trust can allow the beneficiary to enjoy luxuries that would normally be out of a reach for a person dependent on public benefits, such as travel, hobbies, and home furnishings.

However, it is critical that the trust is structured properly, and that the trustee has a clear understanding of the expenses that can and cannot be paid through the trust. The trustee must also have a thorough understanding of the type of property that can be provided to the beneficiary versus the type of property that is considered a “countable asset” and may render the beneficiary ineligible for Medicaid, SSI or other benefits.

General Provisions for Special Needs Beneficiaries

While it is possible to structure a special needs trust to benefit a loved one without interfering with eligibility for public benefits, providing for your disabled loved one may be more complicated. For example, if the beneficiary receives disability insurance payments and has private medical insurance, protection of public benefits eligibility may not be at issue. Still, adequately providing for an individual with special needs may require consideration of different and more complex issues than those in play when providing for a healthy, independent beneficiary.

Talk to a Special Needs Planning Attorney

The right plan to provide for a disabled person after the death of a parent or other relative differs from person to person. Some factors include:

  • Whether or not the disabled person is dependent on public benefits
  • The amount of the bequest or assets available to fund the trust
  • The age of the beneficiary
  • The nature of the disability
  • Whether the disabled person is capable of managing his or her own affairs

An attorney experienced in special needs planning and the creation and administration of special needs trusts can be your best resource as you determine the best approach for your family.

To learn more, contact us today.