Protecting Assets for a Disabled Loved One Through Real Estate
By: Rachel W. Glavis, Esquire – POSTERNOCK APELL, PC
Do you have a disabled family member (child or adult) that currently receives public benefits or will receive them in the future? Perhaps your loved one has autism, developmental delays, or a physical disability. If so, it is important to make sure that your Will or current estate planning is set up to ensure that the needs of such disabled family member continue to be met currently, and after you pass away. By planning now, you will ensure that you have created a protected “nest egg” for your disabled loved one’s future.
If your Will leaves an inheritance to a disabled person without proper protective language, the disabled person may become ineligible to receive public benefits currently, or in the future, because he or she will have more resources than permitted under the public benefit rules. To avoid that result, we assist our clients by drafting a new will that includes language to place such an inheritance into a protective trust. The trust language is very particular, and it also permits you to say who will receive anything left in the trust after the disabled beneficiary passes away.
If a person passes away and his or her will that leaves an inheritance to a disabled person without proper protective language, we can assist the Executor of such Estate by filing an action in court to seek permission to “reform” the Will. This type of court action seeks to protect the disabled beneficiary’s inheritance with amended language that is proposed and approved by the court. The approval by the court lets the Executor of the Estate place the disabled person’s inheritance into a protective trust.
If the Will does not include proper protective trust language, or if the Court is not petitioned to reform the Will after death to include protective trust language, this is what typically occurs: If an adult child is currently receiving public benefits, those benefits might be stopped. For example, if the family notifies the office that coordinates the public benefits to report that an inheritance was received by the disabled person, the person is taken off of the public benefits until such time as that money is fully and properly spent down below the minimum amount permitted under the rules (for example, $2000 for certain Medicaid recipients).
Unfortunately, oftentimes the family does not immediately notify the office that coordinates the disabled person’s benefits. If the family spends some or all of the inheritance, and that office later finds out that an inheritance was received (usually during a later annual review), the public benefits will be stopped. That office will then send a notification stating the person was ineligible in each month that the disabled person had amounts greater than the amount permitted under the rules. This causes a “penalty period” for each month that the disabled person’s resources were over the monthly limit. This may become very troublesome to the disabled person and his or her family, because he or she may end up with no public benefits, and no remaining inheritance money to pay for his or her care.
TRUST PLANNING WHILE YOU ARE ALIVE:
We assist clients who wish to establish a protective trust while they are still alive. Some people wish to gift into such a trust now and over time to create a “nest egg” to benefit the disabled family member now and in the future. This type of planning enables grandparents, family members, and friends to give to the disabled person without affecting his or her right to receive public benefits.
We also assist clients to create a protective trust to ensure that their assets are currently transferred to a disabled family member without affecting that family member’s public benefits, and without affecting their own right to receive public benefits now or in the future. Oftentimes, these types of transfers can protect a house, brokerage accounts, or other assets. We can assist clients to review their assets and determine if this type of transfer would make sense based on their family needs.
For example, a parent who owns a house may reside in the home with a disabled adult child. If the parent’s health is failing, oftentimes the family recognizes that the parent needs to be placed in a long term care facility. The family may wish to ensure that the disabled child can stay in the house after the parent goes into a long term care facility. If the house is transferred into a protective trust, the public benefits for the disabled beneficiary and for the parent will not be adversely affected. We will prepare the documentation to create the trust and transfer the house into the trust.
Sometimes the family elects to transfer the house and some of the parent’s money into the trust to ensure that there are funds available to continue to pay the household costs and maintenance after the parent has been placed in long-term care. After the house is placed in the protective trust, if the family determines that the disabled person cannot live in the house alone, they may decide to sell the house. Fortunately, with a properly drafted trust, if the house is sold, the sales proceeds will remain in the protective trust for the benefit of the disabled person, again without affecting such person’s right to receive public benefits.
Call our office to schedule an appointment to discuss how you and your family can plan to provide for your disabled loved one.