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Use Caution When Planning Your Estate if You Have a Disabled Beneficiary

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Use Caution When Planning Your Estate if You Have a Disabled Beneficiary

Written by Charles Newland on . Posted in Probate and Estate Planning

a wheelchair in blackwhiteLeaving even a small inheritance to a disabled family member could cause government benefits to be reduced or eliminated, but a special needs trust can sidestep many of the restrictions involved so the disabled person can still benefit. An experienced estate planning attorney can help people create such a trust.

Disabled people are subject to certain restrictions to remain eligible to receive needs-based government benefits. These restrictions limit the amount of money recipients can receive or earn and the value of assets they can own.

To be eligible for Medicaid health insurance, the person must also qualify for Supplemental Security Income. As both are needs-based programs, recipients are limited in terms of how much they can earn or own.

Even a small inheritance could push a disabled beneficiary over the limit, which could cost much more in lost benefits than the value of the inherited money or assets. If a disabled loved one loses Medicaid benefits, for example, the cost of medical treatment could easily exceed the value of anything left to the person.

Understanding the Restrictions

A person cannot own assets greater than $2,000 to qualify for Supplemental Security Income. A small inheritance of just $2,050 would push a beneficiary over the limit, rendering him or her unable to receive essential benefits.

Even a larger inheritance, like a home, won’t be advantageous considering that the beneficiary might end up being forced to sell the property to settle medical bills.

Setting up the inheritance as a trust will also affect benefits in most cases. The government sees any form of payments for living expenses as income, and monthly SSI benefits will be reduced accordingly.

If a disabled beneficiary’s living expenses are covered by a trust, the SSI benefits will be reduced on a dollar-to-dollar basis or by a third of the benefits plus $20, whichever is lower.

How a Special Needs Trust Can Help

A special needs trust is designed to provide the beneficiary with things that he or she could not otherwise afford. While SSI benefits must be used for the basics, the trust can be used to pay for medical care not included in the insurance plan, as well as recreation, clothing, and transportation.

If the trust documents are drafted properly by an estate planning attorney and the assets remain in trust, they won’t count under the restrictions because the beneficiary doesn’t technically own them.

 

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