2. Leaving an inheritance to their child without disqualifying them from government benefits by establishing a Special Needs Trust.
There is only one practical and legal method available to leave an inheritance or make a gift for the benefit a child with a disability and preserve the child’s Medicaid eligibility - a Special Needs Trust.
Although there are many types of special needs trusts, they primarily fall into two categories:
The self-settled trust is funded with assets belonging to the beneficiary (the person on SSI and Medicaid).
The third-party special needs trust is funded with assets belonging to someone other than the beneficiary (the person on SSI and Medicaid).
A self-settled trust is often established using a personal injury award or an inheritance. Upon the child’s death, Medicaid must be paid back from the trust assets for the cost of any care provided. If funds are then left over, they are distributed to those were designated by the parents when the trust was established.
Most families are primarily concerned with the third- party special needs trust. This trust, which may be created by a parent or grandparent, will be funded with a gift of cash, life insurance, annuity 401k, IRA or other retirement accounts, securities or other assets. Medicaid is not paid back upon the child’s death, and leftover funds go to those who were designated by the parents when the trust was established.