Ask the Attorney

QUESTION: We have a child who has a disability and is on SSI and Medicaid. When we die, we want our children to get everything equally but we are afraid that it will affect his benefits. A friend suggested we leave it to him in our living trust. He said since it’s in a trust it would be protected from the government. Is that right?

ANSWER: No. If you leave his inheritance to him in your living trust it would disqualify him from his government benefits; being SSI and Medicaid. However, if you create a specific type of a trust called a “Special Needs Trust” for him, then his inheritance would be protected from the government.

The problem with the living trust is that your son has a “legal right” to receive the funds (when you both pass away). Since he has a legal right to the inheritance, the government will treat it as if he has the inheritance in his bank account, even though it is sitting in a trust fund. The government will then stop the public benefits if the inheritance puts him over the amount of assets he is allowed to keep under that specific government benefit program.

However a Special Needs Trust holds the inheritance differently. In a Special Needs Trust, the Trustee has the full & complete discretion as to whether your son receives any inheritance at all. The Trustee decides how much he receives, when he receives it, and what he receives it for. That way the Trustee can use the funds to improve your son’s quality of life but not use the funds in a manner that would affect his public benefits. Examples of what the inheritance could be used for include: travel, attending sporting events, concerts or movies, a television, DVD player, computer, large appliances, pets, transportation, and fitness equipment; to name a few.

Just make sure you see an estate planning attorney who works with Special Needs Trusts. There are specific rules that need to be followed and as you can see, “friends” may not be your best source for legal advice.

Michael B. Walling is an Elder Law & Estate Planning attorney with an advanced Master of Laws degree. He is the managing attorney at The Elder Law Center and the law firm of Michael B. Walling, PLC. He has offices in Battle Creek and Portage, Michigan. Mr. Walling is also a part-time Professor at Western Michigan University.

This column is intended for general information purposes only and should not be considered as legal advice to any particular person.