Legacy Assurance Plan Article: Using Trusts as Part of Your Needs-Based Benefit Planning

Summary: Needs-based government benefits are often a vital lifeline of income for thos who receive them. If you have a loved one who receives benefits, you must take great care if you wish to provide for that person in your estate plan. A special needs trust may serve as an integral tool to leave an inheritance to your loved one without cutting him/her off from essential benefits. 

For many families, needs-based benefit programs are an indispensable source of income necessary for making ends meet. Whether that benefit comes from Medicaid, SSI, VA or another program, the loss of that income would be devastating for most who receive it. That's why it is imperative that you use the greatest of care in conducting your estate planning to make certain that the choices you make do not result in a loved one's unintended disqualification for benefits.

Many needs-based government benefit program look at two factors in assessing whether a person is (or remains) eligible to receive a check through that program. The recipient must have a small enough income and a small enough pool of total assets to be considered in need of receiving benefits through that program. An asset or income stream is considered to belong to that person if he/she has direct control over it.

Legacy Assurance Plan For Financial Benefit

These rules can be very confining. If you have a loved one who receives benefits, you may be unable to leave them a legacy in your will. If you do, then when you die, that inheritance is distributed directly and completely to them. This likely will result in that person have too much wealth in terms of total assets to remain eligible for benefits. What's more, you may not even be able to purchase even simple niceties for that person without disqualifying them from continuing to obtain those benefits. This disqualification can be devastating not only because of the lost income, but also because disqualification may, in some cases, cut that person off from the doctors or group homes upon which he/she has come to rely.

But there is a way around this outcome. The rules of eligibility do not count assets owned by some trusts against the recipient when it comes to determining if your loved one still qualifies for benefits. The way it works is this: you establish what's called a "special needs" or "supplemental needs" trust for your loved one. This trust must be an irrevocable trust. It must also be owned by someone other than your loved one, and the trustee of the trust must be someone other than your loved one.

This avoids the disqualification pitfall because, as an irrevocable trust not owned or managed by the benefits recipient, the rules do not consider your loved one to "control" the trust's assets, and those assets therefore do not count against him/her. You simply fund the trust with the money or assets you would have otherwise distributed directly to that person. Working with an experienced professional is a must in completing this type of planning, because the rules regarding benefits eligibility are often very intricate and even a small deviation may result in disqualification.

This article is published by the Legacy Assurance Plan and is intended for general informational purposes only. Some information may not apply to your situation. It does not, nor is it intended, to constitute legal advice. You should consult with an attorney regarding any specific questions about probate, living probate or other estate planning matters. Legacy Assurance Plan is an estate planning services company and is not a lawyer or law firm and is not engaged in the practice of law. For more information about this and other estate planning matters visit our website at www.legacyassuranceplan.com.