What is the Best Way to Protect an Inheritance?

We often see clients with concerns about loved ones who receive government benefits such as Supplemental Security Income (SSI) and/or Medicaid. Since SSI and Medicaid have very strict rules as to how much money and how much income beneficiaries can have in their name, clients often want to be sure that their gift does not affect SSI and/or Medicaid benefits. It’s very important in this type of situation to implement proper planning that protects their loved one’s important benefits.

Supplemental Needs Trust

During your lifetime, you can set up a supplemental needs trust (sometimes referred to as a “third party trust”). This is a type of trust that can be set up by anyone—other than the person with special needs—and it can be funded during the lifetime of the people who are setting it up, as well as after death. For example, the trust can be named a beneficiary of a life insurance policy. A supplemental needs trusts should be used to supplement government benefits—not replace the benefits. So, it can be used to enhance the quality of life for a loved one in a way that doesn’t affect the government benefits.

A supplemental needs trust can also be established after death, typically through a will, but also through a revocable or irrevocable living trust. This would be similar to the lifetime trust in terms of the language, but in this case it would not be funded or actually established until somebody passed away.

We have a client, Joan, who has three children, one of whom, Michael, was born with a learning disability and is on SSI and Medicaid. Joan wants to treat all three of her children equally, but because Michael is on SSI and Medicaid, he can’t have more than $2,000 to his name. With that in mind, she wants a supplemental needs trust set up in her will so that when she passes away, 1/3 of her estate will be held in a trust for Michael’s benefit in a way that won’t affect his government benefits. The trustee, Joan’s other son, Joe, is going to be able to use that money to enhance the quality of Michael’s life.

If you have a loved one, or know of someone who has special needs or may have special needs in the future, it’s very important to contact an experienced estate and special needs planning attorney to make sure that their benefits are preserved properly.

If you have questions or would like to get involved, please contact us.