Estate Planning for a Disabled Beneficiary

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 What is Estate Planning for a Beneficiary with a Disability?

Estate planning is performing a series of tasks to manage an individual’s real or personal property. The purpose of estate planning is to provide for the distribution of this property in the event of incapacity or death. When a person dies and leaves part or all of their estate to an individual with a disability, special estate planning considerations arise. Beneficiaries with a disability may qualify for government benefits, such as Medicaid.

Individuals who qualify for such benefits may be required under federal law to spend most or all of their assets before they can receive such benefits. Individuals with a disability may have other distinct planning needs. One common estate plan option is the setting up of a special trust for physically or mentally incapacitated individuals. Such a trust addresses their needs after the person setting up the trust has died.

How Can I Create an Estate Plan for a Beneficiary with a Disability?

To create an estate plan for a beneficiary with a disability, the particular needs of that person must be understood and assessmed. The planning should take into account the nature of the disability, including whether the disability is mental or physical; the severity of the disability; what kind of medical care is required; and the degree to which the beneficiary requires assistance in performing daily tasks. The sources of government assistance available to the person should also be considered. Government assistance may consist of social security disability insurance (SSDI) benefits.

Government assistance may also consist of Medicaid benefits. Individuals with certain physical conditions, behavioral disorders or mental illnesses, or developmental or intellectual disabilities, may be eligible for Medicaid benefits. Supplemental Security Income (SSI) is a program administered by the federal Social Security Administration. SSI provides benefits to individuals with disabilities experiencing financial challenges. Some individuals may qualify for both SSI and SSDI benefits.

The future needs of the beneficiary should also be considered. An individual may have a disability that becomes more physically or mentally limiting over time. The amount of assistance with daily tasks the individual needs may therefore increase as time passes. The type of assistance may also change as time passes. A disability that today can be managed with a home health aide may, ten years later, require long term care.

What Does Disinheritance Mean and How Does it Apply?

Disinheritance is an act taken by an individual to ensure that another person does not inherit that individual’s personal or real property. Disinheritance is one estate planning option. Disinheritance of an individual with a disability allows that individual to continue to receive government benefits. This assistance, plus the inheritance money of the individual’s siblings, can be used for the person’’s care.

To disinherit an individual with a disability, a person can leave their estate to that person’s siblings or other relatives. To achieve this result, an individual may prepare a will using specific language of disinheritance, along with a requirement that the siblings spend a portion of their inheritance on their needs.

The financial or marital status of the siblings may serve to reduce the amount of the estate available for the care of the individual with a disability. If creditors have claims against the siblings, or if the siblings file for bankruptcy, the amount of money available for the beneficiary may be reduced to meet creditor claims or bankruptcy payment plans. Siblings who divorce may be required to make alimony or child support payments that may reduce the amount of money left for the beneficiary with a disability.

Can I Use a Disclaimer for Estate Planning Purposes?

A person who creates a will is known as a testator. The testator may use specific language in the will to disinherit a beneficiary with a disability. Alternatively, the individual themselves may renounce the inheritance. The legal term for renunciation of an inheritance is called a disclaimer. A disclaimer is a refusal, made without any conditions, to receive any portion of a testator’s estate after the testator dies.

An individual seeking to disclaim may only do so after the testator dies, because it is only at death that the individual has something to disclaim. Generally, a disclaimer must be in writing, and must specifically identify what is being disclaimed. The individual who is disclaiming may not instruct how to distribute the assets they were to receive.

Some states allow the disclaiming beneficiary to continue to receive their disability-related government benefits after the disclaimer. Other states do not permit this practice. In these other states, a disclaimer can render a beneficiary ineligible for those benefits.

How Do Discretionary Trusts Apply?

Another method of estate planning for a disaled beneficiary is use of a trust. A type of trust known as a discretionary trust is often used to provide for this individual’s needs. The individual who sets up and funds the trust is called a grantor. A discretionary trust is inter vivos, meaning it is effective for the lifetime of the grantor. The grantor must create the trust by transferring the assets for the beneficiary’s use to a third party known as a trustee.

The trustee then holds the trust assets to hold on the beneficiary’s behalf. The trust terms dictate when the trustee must distribute assets for the needs of the beneficiary with a disability. The grantor can create terms providing for distribution at a certain point in time, or when a certain condition is met.

For example, the grantor may include a provision in the trust requiring the trustee to distribute trust assets to the beneficiary with a disability. If a discretionary trust is properly set up, the arrangement will generally not prevent the beneficiary from receiving disability-related government benefits. The reason is because the individual who holds the trust assets is the trustee, and not the individual with a disability. The trustee, in accordance with the terms of the trust, decides when to distribute assets to the beneficiary.

What is a Special Needs Trust?

A special needs trust is a specific kind of discretionary trust. The trust is specifically designed to preserve and protect the beneficiary’s eligibility for disability-related government benefits. There are two kinds of special needs trusts that can be set up. One is an inter vivos special needs trust. This trust is effective during the grantor’s lifetime. The other kind of special needs trust is a testamentary special needs trust. The terms of this trust do not go into effect until the grantor dies.

Regardless of which kind of special needs trust is created, the named trustee has an obligation to protect the beneficiary’s ability to receive government benefits. To ensure that eligibility for government benefits is preserved, a special needs trust must be irrevocable. Generally, an irrevocable trust is a trust whose terms may not be modified, amended, or terminated once the trust has been created by the grantor.

Do I Need a Lawyer if I Need Estate Planning Help for a Beneficiary with a Disability?

If you desire advice or assistance on estate planning for a beneficiary with a disability, you should contact an estate attorney near you. An experienced estates attorney can work with you to create an estate plan that provides for the beneficiary’s needs. The attorney can work with you to ensure that the person in question remains eligible for receipt of disability-related government benefits, including SSI, SSDI, and Medicaid.

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