There are different ways to get assets into the hands of someone after you pass away. A method that is acceptable for one person may be disastrous for another. With this in mind, lets look at inheritance planning for people with disabilities and the special needs trust.
Need-Based Government Benefit Eligibility
In the United States, most people that are not senior citizens get their health insurance through their employers. A significant percentage of individuals with special needs are not in a position to work, so this is not an option for them.
Obviously, these folks need health care insurance, and there is a solution the form of the Medicaid program. This is a need-based federal/state government funded program that provides health insurance for people with very limited resources.
You cannot qualify if you have more than $16,800 in countable assets in your name, but a home is not considered to be a countable asset. However, there is an equity limit, and it stands at $955,000 this year.
In addition to the health care coverage that they receive through the Medicaid program, people with disabilities with limited resources can qualify for Supplemental Security Income (SSI).
Once eligibility for these programs has been granted, it is not necessarily permanent. Someone that comes into money could potentially lose their benefits, and this is something to take very seriously if you have someone with a disability on your inheritance list.
Special Needs Trust
There is an ideal solution in the form of a special needs trust. To implement this strategy, you fund the trust, and you name a trustee to act as the administrator. It cannot be the beneficiary, but any adult that is willing to assume the role can technically act as the trustee.
If you do not know anyone personally that would be a good candidate, you have recourse. Trust companies and the trust departments of banks provide trustee services for a fee, and this can be the right choice under some circumstances.
The government benefits are supposed to cover health care expenses, food, and shelter. This is somewhat unrealistic, because the maximum SSI payout in 2022 is $841.
Under the rules of these programs, the trustee could use the assets to provide anything other than food and shelter, and there would be no penalty at all. For expenditures that are used for these necessities, there is a maximum penalty of one third of the benefit plus $20.
Medicaid Estate Recovery
Medicaid will look into the estate of a deceased beneficiary, and if they are in direct possession of valuable property, Medicaid can attach the resources. This is called the Medicaid estate recovery process.
In most cases there will be nothing for them to take with the possible exception of a home that was in the direct personal possession of the decedent.
The dynamic is somewhat different when a special needs trust has been established for a person with a disability.
If the funding is coming from someone other than the beneficiary, it is a third-party trust. After the death of the first beneficiary, the successor beneficiary that is named in the trust declaration would assume the role, and the assets would be protected from Medicaid estate recovery.
A person with a disability will sometimes come into money from a personal injury settlement or judgment or from another source. The funds could be used to establish a first party or self-settled trust.
When a first party trust has been established, the remainder would be accessible to Medicaid during the recovery phase. This is why you would not want to leave a direct inheritance to someone with the idea that they could establish a self-settled trust.
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While he was in law school, he worked as an aide to the late John Sparkman, Senior Senator from Alabama. This gave him the opportunity to gain intimate knowledge of the workings of government, and this background has served him well.
He started his private practice in New York in 1974, the first Sikh to be admitted to the bar in the state of New York.And in 1995, when he narrowed his legal focus to the areas of estate planning and elder law, the prestigious American Academy of Estate Planning Attorneys accepted him into their membership.
Special needs planning is an important aspect of the field, and Mr. Khalsa has intertwined his empathy with his expertise to become a leading advocate in this area. Shortly after the Education for All Handicapped Children Act was enacted in 1975, he won the first case in New York that was adjudicated under this law.
S.J. Khalsa has a penchant for philanthropy, and he has raised well over $20 million for charities nationwide. He is a deeply spiritual man who represents the Sikh religion at religious and interfaith gatherings all over the globe.
He believes that successful professionals should contribute to the fabric of their communities, and to this end, he works with law enforcement in New York.
Mr. Khalsa is a graduate of the FBI Citizens Academy program, and he is active in their Alumni Association. He is a member of the FBI/New York Police Department Joint Task Forces on Civil Rights and Hate Crimes, and he sits on the Community Engagement Council that advises the FBI Assistant Director for New York.
He is the author of the highly acclaimed book, Estate Planning Essentials: A Guidebook for Modern Families. Lawyers of Distinction recognized him for his excellence in 2020, naming him a 2020 Power Lawyer, and he is a member of the prestigious American Academy of Estate Planning Attorneys.
Mr. Khalsa lives in Manhattan with his wife, and he has two grown children and four grandchildren. He likes to travel, and he is an avid golfer. As the co-owner of Kundalini Yoga East in New York along with his wife, he instructs practitioners and aspiring yoga teachers.
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