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Protecting your inheritance without losing Medicaid benefits

Your disability does not keep you from many important day-to-day tasks. However, it does make life expensive and difficult when it comes to your medical needs. A family member wants to leave an inheritance to you, but your medical needs will drain those assets. Meanwhile, the income will cause you to become ineligible for the government benefits you count on.

Is there anything you can do to protect your inheritance and retain the assistance you need?

The special needs trust

Fortunately, there is a type of trust designed to protect the assets and assistance eligibility of people with disabilities. A trust is an entity that has ownership separate from you; once you transfer your inheritance to the trust, it belongs to the trust and not to you. Because the assets are not yours, they may not affect your eligibility for Medicaid or other assistance. 

How much income you receive from the trust could still cause you to lose your government benefits. To prevent a monthly income from jeopardizing your assistance, the instructions to your trustee may include paying many of your expenses directly from the trust rather than giving you the money and letting you pay those bills. So, for example, the trustee may pay your house and car payment. He or she could still allot an amount of money to you below the maximum allowed by Medicaid so you can make your own purchases such as food, clothing and your daily needs. 

The Special Needs Trust Fairness Act

Up until Dec. 16, 2016, the only people who could set up a special needs trust were the parents, grandparents or legal guardians of a person with a disability. This type of trust was strictly a third-party trust. However, lawmakers recognized that many people with disabilities are mentally competent and want to manage their own affairs. Denying these people the ability to set up their own special needs trust was unfair, particularly for those who did not have a parent, grandparent or legal guardian.

By signing into law the Special Needs Trust Fairness Act, the government made it possible for any mentally competent person with a disability between the ages of 18 and 65 to set up his or her own trust.

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