In some circumstances an individual may wish to leave an inheritance for a loved one who receives resource based government benefits. Such benefits typically include Medicaid (which provides health care coverage) and Supplemental Social Security Income or SSI. However, if not done properly such a gift may cause more difficulty for the recipient than benefit.
This is because eligibility for these programs is based on financial qualification. In other words, to receive Medicaid or SSI, the recipient must have financial resources below a certain amount. If a well-meaning friend or family member leaves a significant amount of money or assets to the benefit recipient - that benefit recipient may find that he or she no longer qualifies for these benefits.
So what to do? This is where a Special Needs Trust comes into play. Funds can be placed into a special needs trust of which the benefit recipient is a beneficiary of the trust. Now the funds in the trust can be used for certain expenses of the benefit recipient, and the terms of the trust are such that the trust assets will not be counted as a resource for purposes of benefit eligibility.
The reason that assets in a special needs trust are not counted toward financial qualification for these benefits is because the trust assets are structured and managed in a very particular way.
To begin with, the trust assets are managed by a trustee who is a person other than the benefit recipient. Additionally, the trust is set up with very specific rules as to how the funds can and cannot be used. Typically, we will say that the trust assets cannot be used to pay for things that these benefits normally pay for (e.g. basic room and board). The overall concept is that the assets of the trust will be used to supplement the benefits received by the beneficiary.
Planning for a special needs beneficiary can involve a level of complexity that makes it advisable to work with an experienced attorney.