PRESERVING ELIGIBILITY FOR PUBLIC BENEFITS AND INHERITED ASSETS WHEN THERE HAS BEEN NO (OR INEFFECTIVE) PLANNING FOR A DISABLED PERSON
Kevin Urbatsch* and Polly Levin**
In an ideal world, every person with a disability who is both dependent upon "needs based" government benefits1 and is fortunate enough to receive an inheritance will receive the inherited assets through a well-drafted third-party, special-needs trust. All too often, however, uninformed family members or friends leave assets outright or in a trust which is ineffective to preserve public benefits, with the distressing result that the heir/beneficiary is confronted with the prospect of losing eligibility for those vital benefits. The inherited assets will then be rapidly depleted to pay the cost of medical care, attendant care, housing and other essential needs that were formerly covered by public benefits. The person with a disability is left with no ability to pay for future needs, the prospect of re-qualifying for Supplemental Security Income ("SSI")2 and an accumulation of anger and frustration from haggling with the Social Security Administration, attorneys and case workers.
The primary means to escape this quagmire is to transfer the inheritance into a first-party, special-needs trust, authorized under federal law at 42 U.S.C. § 1396p(d)(4)(A) (commonly called a "d4A SNT") or to join a pooled, special-needs trust authorized under 42 U.S.C. § 1396p(d)(4)(C) (commonly called a "Pooled SNT"). If the inheritance is modest, other alternatives are to spend the assets down,3 purchase "exempt" assets,4 or enter into a "personal care contract" with a third party.5 Neither the exercise of a disclaimer, nor a gift of the assets to a third party, is effective to maintain eligibility for "needs-based" public benefits, as both those actions are considered an impermissible "transfer for less than fair market value."6