Long-term Care Planning
While you may not currently need long-term care, it is important to plan for your estate, finances, and future health care needs if you ever do need it. Long-term care in all settings can be very expensive, and many are surprised to learn that Medicare does not cover complete long-term care. Planning ahead is particularly important for individuals with Alzheimer’s disease and other dementias.
Medicaid, a joint state and federal program, is one way to pay for long-term care. To qualify for Medicaid, an individual must be unable to perform one or more activities of daily living or have a diagnosis of a serious cognitive impairment, such as Alzheimer’s disease. Additionally, the individual must meet strict income and resource requirements.
If Medicaid planning is done, particularly in advance, it is possible not to spend all the person’s savings on care before qualifying for Medicaid. Medicaid planning should be done by an experienced elder law attorney.
Disability Planning
Special Needs Trusts
Special Needs Trusts can be established to improve the quality of life for individuals without disqualifying them from receiving public benefits. These trusts are designed to help people with disabilities pay for items and services that government benefits do not cover. There are two types of Special Needs Trusts that can be set up:
A First-Party Special Needs Trust (also known as D4A Trust or Self-Settled Special Needs Trust) is an irrevocable trust that is established with the assets of the individual with a disability. The individual with the disability may have received funds through an inheritance, lottery winnings, or proceeds from a lawsuit or other money that they had at the time of their disability. First-Party Special Needs Trusts may be created by a parent, grandparent, guardian, court or beneficiary. The beneficiary must be the sole beneficiary of the trust but has no power to demand money from the trust. First-Party Special Needs Trusts have a Medicaid pay-back requirement and the individual must be disabled and under the age of 65 at the time the First-Party Special Needs Trust is created.
Third-Party Special Needs Trusts are created with assets owned by someone other than the disabled person, such as parents, grandparents, other relatives, or friends. Like the First-Party Special Needs Trusts, there are specific rules that must be adhered to for the Third-Party Special Needs Trust to be considered a qualified Special Needs Trust. A key difference from the First-Party Special Needs Trust is that Third-Party Trusts do not have a Medicaid pay-back provision requirement. As there is no Medicaid pay-back provision, the creator of the trust can choose where the money will go after the beneficiary dies, making the Third-Party Special Needs Trust a preferable option for many families.
Both First-Party and Third-Party Special Needs Trusts can be established as pooled trusts, which are managed by a non-profit organization. Pooled trusts allow assets from multiple beneficiaries to be combined for investment purposes while maintaining separate accounts for each individual.
ABLE accounts
The Achieving Better Life Experience (ABLE) Act created tax-free savings accounts for individuals with disabilities. An ABLE account is a type of tax-advantaged account that an eligible person can use to save funds for disability-related expenses of the ABLE account beneficiary. ABLE account beneficiaries must be blind or disabled by a condition which occurred before the individual’s 26th birthday. Funds in the ABLE account may only be used for qualified expenses. However, in contrast to a special needs trust, ABLE funds can be used for housing and groceries. ABLE accounts are subject to Medicaid payback provisions. ABLE Accounts are not a substitute for special needs trusts and ABLE and special needs trusts can be used together.
