Estate planning for individuals with a disability often involves setting up a special needs trust, appointing a legal guardian and choosing a healthcare proxy. These steps help manage assets while protecting eligibility for government benefits like Medicaid or Supplemental Security Income (SSI). It also includes creating clear instructions for medical and financial decisions through powers of attorney or living wills. Here are seven estate planning tips that you could follow.
If you want to create an estate plan, a financial advisor could help you manage assets, minimize taxes and recommend strategies.
1. Understand Asset Limits for Government Benefits
When planning an estate for a person with a disability, asset limits for both Supplemental Security Income (SSI) and Medicaid play important roles. For SSI, an individual typically cannot have more than $2,000 in countable assets, while married couples face a combined limit of $3,000. Medicaid eligibility varies by state, but most states adhere to similar asset limits - often around $2,000 for an individual. Certain assets, like a primary home, a vehicle and personal belongings, may be exempt.
2. Establish a Special Needs Trust
A special needs trust is an estate planning tool that allows assets to be managed for a person with a disability while preserving their eligibility for government benefits like SSI and Medicaid. The trust holds assets separately, so they aren't counted toward the beneficiary's income or asset limits. A trustee manages the funds, using them for the beneficiary's care and needs, providing financial support alongside public assistance programs.
3. Appoint a Guardian or Conservator
Appointing a trusted person as guardian or conservator is an important estate planning step for individuals with disabilities who cannot manage their own personal or financial affairs. A guardian handles personal decisions like healthcare and living arrangements, while a conservator manages finances. Legal documentation appoints them, helping avoid court involvement and providing consistent care and financial oversight.
4. Establish an ABLE Account
Achieving a Better Life Experience (ABLE) accounts let people with disabilities save money without losing eligibility for SSI or Medicaid. Contributions can come from family, friends, or the individual and can be used for disability-related expenses like housing, education, or healthcare. ABLE accounts allow for financial independence while preventing excess assets from jeopardizing government benefits. Annual contributions cannot exceed the annual gift tax exclusion ($18,000 in 2024), but the tax advantages and flexibility make this a powerful option in disability estate planning.
5. Create an Advance Healthcare Directive
An advance healthcare directive is a legal document that specifies an individual's medical preferences in case they become unable to communicate them later. This document allows people with disabilities to outline specific healthcare concerns or treatments they may want to avoid. It can also appoint a healthcare proxy authorized to make decisions on their behalf.
6. Appoint a Durable Power of Attorney
A durable power of attorney (POA) is a legal document that authorizes someone to make financial and legal decisions for a person with a disability, remaining valid even if the individual becomes incapacitated. This allows the designated person to handle tasks like paying bills, managing property, or filing taxes. The person selected for this role should be trustworthy and capable of managing financial matters, and it may be beneficial to assign separate POAs for medical and financial decisions to provide focused oversight.
7. Plan for Long-Term Care
Long-term care assists individuals with disabilities in managing daily tasks like bathing, dressing and taking medication. These services can be provided at home, in assisted living facilities, or nursing homes, with costs often exceeding $100,000 per year in many states. Medicaid may cover some of these costs, but it has strict eligibility requirements. Planning for long-term care in an estate plan helps make sure necessary services are affordable without depleting assets. Options such as long-term care insurance or special needs trusts can help fund care while maintaining eligibility for public benefits.
Bottom Line
Estate planning for individuals with disabilities could help address their financial and medical needs. Special needs trusts and ABLE accounts offer financial support while preserving eligibility for government benefits. Appointing trusted individuals as guardians, conservators, or through durable powers of attorney, can ensure the management of personal and financial matters. Additionally, advance healthcare directives could also guide medical decisions based on the individual's preferences. And planning for long-term care also helps cover future costs without depleting assets.
Tips for Estate Planning
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