Common Myths About Wills & Estate Planning

The Disabled Beneficiary

Someone who is unable to manage their financial affairs or who is eligible for government benefits, such as medicaid or supplemental security income (“SSI”) benefits would be someone who is a “disabled beneficiary” for purposes of this post.  Gifts to disabled beneficiaries demand special attention and focus.

The SSI program has strict limits on the amount of income and assets you can have and be eligible for SSI.  If you leave an inheritance to or name a disabled beneficiary on a beneficiary form, the asset transferred to the beneficiary could cause them to be in excess of income or asset limits and disqualify them for SSI.  The beneficiary would be required to “spend down” the amount of the gift and then reapply for SSI.  This wastes your money and causes a delay in the resumption of the beneficiary’s receipt of SSI benefits.  In the event a disabled beneficiary does receive assets that could disqualify them, there are ways to avoid the problems.  The beneficiary may be able to disclaim the gift or spend the gift on assets that do not “count” for SSI eligibility and thereby reduce the delay in resumption of the SSI benefit.  These rules are very technical and you should consult an attorney experienced in estate planning, elder law or guardianship matters for assistance.

If you leave the disabled beneficiary’s bequest to someone else with the understanding that person will “hold” the money for the beneficiary, this can cause many other problems.  The person to whom you entrust the money has no legal obligation to spend the money for the intended beneficiary.  Additionally the bequest is also subject to that person’s debts and liabilities.   If a creditor sues and gets a judgment against them, your gift could be at risk.

We recommend that special needs or supplemental needs trusts be used to receive and hold any bequest or gift intended for a disabled beneficiary.  These trusts have special terms that will not disqualify the disabled beneficiary’s eligibility for SSI or Medicaid.  A trustee should be named who has a legal responsibility to spend the money in the trust for only the beneficiary.  Administration of the trust is subject to oversight by the local courts in the event of any questions about the trustee’s management of the money.  These trusts can be part of a Will or a stand-alone “living” trust that is created and funded before your death.

If you have someone who you think might be a disabled beneficiary, please call our estate planning and elder law team of Jennifer Bamonte, Esquire, Michael E. Fiffik, Esquire or David P. Siegel, Esquire for assistance.

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