When you are planning your estate, you should consider the life situation of each and every person on your inheritance list. There are various different asset transfer methods that can be used, and the right choice can vary from person to person. This definitely enters the picture when it comes to people with disabilities. Louisiana is the only state that has “forced heirship” and the laws regarding “forced heirship” have to be considered in the estate planning of any family that has a family member who suffers from a disability that makes them qualify as a “forced heir” and also entitles them to government benefits.
Need-Based Government Benefits
Everyone needs health insurance, but it is absolutely essential for people with special needs that will require expensive care throughout their lives. Most Americans get insurance through their jobs, but when you cannot work because of your limitations, this is not an option.
Someone that cannot earn income is naturally going to have significant financial need. These folks can qualify for Medicaid as a much-needed source of health insurance. Supplemental Security Income (SSI) is another need-based benefit that people that qualify for Medicaid often rely on.
Once eligibility has been granted, it is not necessarily permanent. An improvement in financial status could cause a loss of eligibility. This is why you have to be careful about the way you leave an inheritance to a person with a disability. This is another reason you have to take the Louisiana laws on “forced heirship” into consideration when planning on leaving an inheritance to someone with a disability.
Choose the Safe Path
On the surface, this can seem like an impossible situation, but there is a solution. If you are in this position, you could make your loved one the beneficiary of a supplemental needs trust. Louisiana law allows a parent to place the amount that has to be inherited by a “forced heir” into a trust. The fraction of a person’s estate that has to be left to a “forced heir” is called the “legitime” and a properly drafted supplemental needs trust can also satisfy the Louisiana laws regarding the “legitime” a ‘forced heir” is entitled to receive.
When you are establishing a supplemental needs trust, you have to name a trustee to act as the administrator. Any adult that is willing to do the job can technically act as the trustee. This being stated, there are rules that must be followed, and longevity can be a source of concern.
If you don’t know anyone personally that would be a sensible choice, you do have another option. Trust companies and the trust departments of banks offer trustee services. This can be the right way to go if the trust is funded well enough to stay active for an extended period of time.
Medicaid does not pay for every medical or therapeutic treatment that a recipient may want or need. Supplemental Security Income certainly helps, but the monthly payouts are very limited. They do not go very far, so it is nearly impossible to live on SSI alone.
The beneficiary would not be able to access funds in the trust directly. Under the program guidelines, the trustee would be allowed to use assets in the trust to make the beneficiary more comfortable in many different ways.
There are many different goods and services that can be purchased with assets that have been placed into the trust. These would include education, medical and dental expenses not covered by Medicaid, transportation, vacations, and a place of residence, just to name a handful.
Medicaid Estate Recovery
When a Medicaid recipient dies, the program is required to seek reimbursement from the estate of the beneficiary. If you create a supplemental needs trust with your assets for the benefit of someone else, it would be a third-party trust. However, a supplemental needs trust established for a “forced heir” has to comply with Louisiana’s law on “legitime” so a certain portion of the trust has to pass into the estate of the “forced heir” Medicaid recipient when that person dies. This means a portion of the trust assets will end up being subject to the Medicaid Estate Recovery rules and that makes planning for a Medicaid recipient heir less flexible and more complicated in Louisiana than in other states.
On the other hand, if a parent leaves a disabled child an amount in trust that exceeds the “legitime” then the trust can say the excess amount will not become part of the estate of the Medicaid recipient “forced heir.” That amount could remain in trust for other family members or could pass to other heirs. Medicaid would not be able to go after the portion of the trust assets that pass to other heirs or remain in the trust after the death of the Medicaid recipient. The part of the trust assets in excess of the “legitime” of the “forced heir” would go to a successor beneficiary that you name when you create the trust agreement.
Sometimes a person with a disability that is enrolled in these programs will come into money through a personal injury settlement or judgment, or from some other source. They could use the funds to establish a first party or self-settled special needs trust.
While the beneficiary is living, the trustee could do all the same things that we have described to this point. The major difference is that Medicaid would be able to attach assets that are still in the trust after the beneficiary’s passing.
Want to Learn More?
If you are interested in creating a supplemental needs trust for the benefit of a loved one with a disability, we are here to help. We can answer all of your questions and help you put a plan in place if you decide to move forward.