There is no other area of law that creates more heartache when someone fails to plan appropriately than when someone with special needs is affected. Persons with special needs are everywhere: the elderly, the permanently disabled, the developmentally disabled, and so on. These most vulnerable persons are usually punished because of the good intentions, or indecision, of their friends and relatives. A person with special needs is anyone who is currently part of, or likely to apply for, a public benefits program which they will always require. Such persons must be planned for in advance and planned around.
1. “My child/grandchild is permanently disabled; does my basic family trust protect them?”
Answer: Usually no. The government has been getting out of the business of helping for decades. If there are grounds for denying benefits, the policy is to deny and force an appeal by the applicant. Have your trust reviewed by an elder lawyer to see if the language sufficiently deprives the disabled child of their property rights in the inheritance.
Practical Example: Joe and Jane have three adult children, one whom has a cognitive disorder, lives in a care facility, and is on public benefits. Joe and Jane later divorce, and Joe relocates to another state and loses all contact with his family. Joe dies seven years later in a car accident leaving his personal residence and his retirement savings. Joe’s estate plan correctly restricts inheritance for disabled child. Joe’s father dies one month later, and Joe’s father’s trust plan provides that Joe’s share goes to Joe’s children equally. Disabled Child loses public benefits and is discharged from facility because inheritance through grandfather disqualifies child from benefit program for six months.
2. “What happens if my special needs child inherits money?”
Answer: Very little that helps them. Most often the inheritance is insufficient to replace the value of their public benefits for the remainder of their life. Parents of adults or children who are on public benefits need specific estate plans to protect them from strict benefits regulations.
3. “I inherited money when I shouldn’t have, now what do I do?”
Answer: As soon as possible, a consult with an Elder lawyer is advised. The regulations that apply in this context are time sensitive.
4.“I am applying for public benefits, should I sell my house to a loved one?”
Answer: It depends. Large asset transactions in advance of applications for public benefits can cause a delay in benefits and may have other negative consequences. Consult with an Elder lawyer to ensure that the consequences of such types of decisions are well understood.
Practical Example: Barry Senior is retired and owns a large, million-dollar farm. He heard probate is bad from his friends, so he decides to gift to each of his children large tracks of the farm early, but to keep the small tract with his home only. Barry has no other assets, and expects to live off of his social security checks. Three months later, Barry is diagnosed with Alzheimer’s disease, and needs services today which Medicare does not cover. Given his current income and resources, Barry otherwise qualifies for Medicaid and ALTCS. In his application, Barry discloses the property transfers to his children. Barry’s transfer results in an eligibility penalty for five years. Barry will likely have to self-pay for his care for five years before AHCCCS will extend coverage for Barry’s medical care.
5.“What is a TEFRA lien and how does it affect my house/my parent’s house?”
Answer: It is a legal device that permits the government to recover against a recipient’s real estate for the costs of certain benefits that were extended. Like other liens, it encumbers the property it is attached to, and will need to be discharged or satisfied before it can be removed.
Practical Example: Barry Senior lives in his house and has Medicare. Barry has a serious stroke. Barry needs additional rehabilitative and supplemental care not covered by Medicare. Barry qualifies for Medicaid which does provide such benefits and enrolls. Barry has a second stroke, but this time he needs long term care in a facility for four months to recover before returning home. AHCCCS files a TEFRA lien against Barry’s home for the value of the long term care facility services. The lien notice was not contested. Barry was projected to return home, but dies from complications unrelated to his long term care for his stroke. Child eventually lists house, the title report turns up $70,000.00+ TEFRA lien. Before the child can withdraw listing, the house sells and AHCCCS elects to recover on lien.
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Practice Tip: It is easy for clients to take for granted how complex their personal affairs are. If a key player is removed from the game, what usually happens? Estates are no different. Life insurance funds help, but money only goes far and it is only as effective as the person directing the grand plan. Throwing money at a bad plan usually amplifies harm. Complex life situations or complex asset structure dictate a detailed planning need.
*Watch for big “life”events. Birth, marriage, death, divorce&disability, trigger these kinds of questions.
*The information provided in this article is of a general nature and reflects only the opinion of the author at the time it was drafted. It is not intended as definitive legal advice, does not create an attorney-client relationship, and you should not act upon it without seeking independent legal counsel.