How Receiving an Inheritance Affects a Special Needs Individual

February 21, 2018

Do you or a loved one in Florida rely on public assistance such as Medicaid or Supplemental Security Income (SSI)? If so, then you need to understand how receiving an inheritance may affect your continued eligibility to receive public assistance. Likewise, if there is a chance that you may want to apply for Medicaid in the future, understanding the impact of inheritance law is crucial.

Consider the following scenario: A well-intentioned parent creates an estate plan that includes an outright inheritance to their son. Likewise, a well-intentioned parent lists their son as the beneficiary on a financial account. At the time the estate plan was created the son was healthy and did not rely on Medicaid for his health care needs. Unfortunately, due to a motorcycle accident, the son develops special needs later in life, thus becoming reliant on public assistance.

During the parent’s life, their estate plan was not modified to account for their son’s special needs. Once the parent dies, a large sum of money is left for their son as an outright inheritance. If this inheritance exceeds the $2,000.00 monthly allowable income limit for Florida Medicaid benefits, their son is immediately disqualified from continuing to receive his Medicaid benefits. Herein lies the unintended unfortunate consequence of a special needs individual receiving an outright inheritance.

To avoid this, the best course of action is for the parent to create a Special Needs Trust (“SNT”) for their son, at the time he developed special needs or anytime thereafter. If the parent is now deceased, and this option has passed, there is still a way that the special needs individual can receive his inheritance without the risk of losing Medicaid. This can occur through court reformation of the beneficiary designation listed with the financial institution.

Reforming a beneficiary designation can be a powerful tool to ensure the parent’s intent to properly care for their child is honored. How does this work exactly? In the scenario described above, reformation can be used to change the beneficiary designation from the son as an individual to the son’s SNT. First a SNT would need to be established for the son through a law firm that focuses on estate planning and special needs planning.

Next, the son or caregiver must petition the Court to issue an order to allow such a change in beneficiary. If the court approves the proposed change, then the inheritance can be placed into the son’s SNT as opposed to received directly by the son. For example, if a bank account or life insurance policy had the son listed as the beneficiary, the court order would now allow the bank or life insurance company to issue payment to the son’s SNT, rather than to the son’s name directly.

Once placed in the SNT, assets are not counted toward the $2,000.00 Medicaid limit because they are not in the son’s name. The son can continue to receive the medical care that he depends on through public assistance and receive his inheritance (through his SNT) to improve his daily quality of life.

At OC Estate & Elder Law we have helped clients improve their quality of life by resolving numerous Medicaid Planning and Elder Law issues. If you have questions about the situation described above, or are experiencing similar circumstances, contact us at (954) 251-0332 or for competent legal advice during our free consultations.