People in our region try to save throughout their lives. The struggle comes when those people who have saved experience long-term care needs, typically nursing home, assisted living or in-home care.
Often, Medicaid is the tool used to avoid having to pay out-of-pocket for long-term care. However, Medicaid eligibility means that a person must be almost completely impoverished.
As this column has explained previously, there are multiple tools available to attempt to shield assets to allow someone to become Medicaid eligible. Usually, those tools involve a person giving up either all ownership, partial ownership or control of various assets, including money.
In this context, people often give up their control or ownership of assets to their kids. This makes perfect sense, because kids are obviously younger than parents and therefore less statistically likely to need long-term care before their parents.
However, today, people live longer than ever. It is not uncommon for a person to pass away having adult children who have retired or are themselves needing long-term care. In these situations, the parent’s hard work in protecting assets can be thwarted.
In other words, a parent may protect an asset by giving the asset (or the asset’s control) to the child, but if the child needs long-term care himself or herself, the child could be required to spend that asset that was intended to be protected.
In this situation and in other situations like it, a reasonable tool that can often help is a special needs trust. Special needs trusts are obviously thought-of most commonly when someone has a family member who may not be mentally or physically able to handle all of his or her own assets or is legally disabled. However, special needs trusts have become even more important for the reasons explained above, to provide protection if a person’s kids themselves need long-term care after control or ownership of assets is provided to those kids.
Trusts are easiest to understand if they are considered “sets of rules.” A special needs trust provides rules that limit the use of money or assets for a beneficiary who is disabled.
Typically, the rules of a special needs trust will require that trust assets (assets subject to the rules of the trust) not be used for anything that a governmental program could pay on behalf of the disabled beneficiary, such as food, shelter and most aspects of long-term care. Frequently, special needs trusts will allow the trustee of the trust to pay for a beneficiary’s vacations, home furnishings, education, vehicles, extraordinary therapy and recreation.