For many families in Michigan, receiving public benefits and assistance is financially critical. Specialized estate planning is essential for families who want to protect a child’s eligibility for needs based benefits while still providing meaningful long term support through an inheritance.
Without careful planning, well intentioned financial gifts or inheritances can unintentionally disrupt critical government assistance programs such as SSI and Medicaid. A custom tailored estate plan ensures that resources through the estate are structured in a way that enhances the child’s quality of life without jeopardizing these important benefits they rely on.
Why Public Benefits Can Cause Friction with Inheritance
Needs based programs like Supplemental Security Income (SSI) and Medicaid offer essential financial and medical support to individuals with disabilities. However, this eligibility depends on the recipient maintaining income levels below the legal threshold. A beneficiary generally cannot hold more than about two thousand dollars in countable assets, without losing their eligibility, eliminating or reducing their access to vital benefits.
When a child who relies on these programs receives an inheritance directly, the assets immediately count as their own and can push them above the allowed limits. This can and often does result in suspended SSI payments and loss of Medicaid coverage. The child may then need to spend down the inheritance just to regain eligibility, undermining the long term support the family intended. This is why families often use special needs trusts or similar planning tools to allow for the receipt of inheritance funds without disrupting crucial public benefits.
Using Special Needs Trusts and ABLE Accounts to Protect Benefits
One way to avoid conflict with inheritance and public benefits is through the use of special needs trusts and ABLE accounts. These options offer structure to help individuals with disabilities to receive financial support through the estate without losing needs based government benefits.
A special needs trust holds assets for the beneficiary while keeping them off the books for SSI and Medicaid. One option with this is the use of first party trusts that use the beneficiary’s own funds and require Medicaid payback. Alternatively, third party trusts can be used that use family funds and do not require medicaid payback. ABLE accounts offer another avenue to let eligible individuals save money received through inheritance in a tax advantaged account. This account does have set limits but if these are not surpassed they do not affect benefit eligibility.
Generally speaking, a special needs trust is used to manage larger or more complex assets and an ABLE account is used to handle smaller transfers for everyday expenses. Both tools can pay for a broad range of disability related needs that improve quality of life and foster independence, such as housing, medical, transportation and educational needs.