Medicaid Planning and Special Needs Trusts
Dear Colleague:
An effective tool in estate planning is the use of a Special Needs Trust. Sometimes there is a child or beneficiary with a disability who is unable to receive an outright distribution, either due to their inability to manage the inheritance or due to the government benefits they are receiving. A Special Needs Trust is designed to supplement, but not replace, any government benefits they are receiving. It can provide money for the “extras” that the person may need.
A “Third Party” Special Needs Trust allows a parent, grandparent or third party to leave an inheritance to a special needs person. Some clients, however, may receive an inheritance or a settlement, and need to shelter these funds so their government benefits are not jeopardized. As a result of the Omnibus Budget and Reconciliation Act, an individual can place his or her own assets in a Special Needs Trust. Two types of trusts are recognized and used in Michigan to shelter a beneficiary’s own assets. An “Exception A - Pay Back Trust” and an “Exception C - Charity Trust.”
Both trusts are created with the individual’s own funds, and there is no penalty for this transfer. The beneficiary can use the funds during their lifetime to provide extras above and beyond what is provided by Medicaid or SSI. With the “Exception A” trust, at the beneficiary’s death, any remaining funds must reimburse the State up to the amount of Medicaid assistance the person received. The “Exception C” trust allows for any remaining funds, at the death of the beneficiary, to be retained by a non-profit organization to assist other individuals with disabilities.
Proper planning with a Medicaid or SSI applicant, or someone who wishes to leave to a disabled beneficiary, requires consideration of the use of some form of Special Needs Trust. Specific guidelines, provisions, and special language is required so that the funds are not treated as a countable asset to the applicant.
Smith Bovill, P.C. counsels clients on elder law, Medicaid, and SSI planning issues regularly as part of its estate planning, probate, and trust administration practice. This letter, as well as all prior letters, are posted on our web site at www.smithbovill.com. Please check our web site for any updates to the newsletters and additional information regarding elder law. This letter and the information on our web site, is intended to be for informational purposes only. As a result of the constantly changing laws in the Medicaid area, the information provided may change. We would be pleased to discuss this, or any other Medicaid or elder law issues, in more detail.
SMITH BOVILL, P.C.
