Planning for Incapacity involves preparing for the possibility of a mental disability that may impact the ability to manage one’s affairs. While we can’t control when incapacity may occur, we can take legal steps to plan for the possibility.
With the right legal documents, we can make our wishes known, outline our preferences and appoint trusted agents who will make decisions for us in the event that we are no longer able to do so. Durable powers of attorney should be customized to fit the particular needs of the individual.
Long-term Care Planning
Long-term care encompasses health care provided at home, in an assisted living facility, or a nursing home. While you may not currently need long-term care, it’s crucial 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.
Special Needs Trusts
Special Needs Trusts can be established to improve the quality of life for individuals without disqualifying them from receiving public benefits. Establishing a Special Needs Trust can provide peace of mind by ensuring that a loved one with disabilities has access to additional resources without jeopardizing their eligibility for crucial public benefits. These trusts are designed to help people with disabilities pay for items and services that Social Security Income (SSI) and Medicaid do not cover.
Also known as D4A Trusts or Self-Settled Special Needs Trusts, First-Party Trusts are created with assets belonging to the individual with a disability. These assets might include an inheritance, lottery winnings, or proceeds from a lawsuit. A key feature of First-Party Trusts is the requirement to repay the state for any Medicaid benefits received by the beneficiary. Additionally, the individual must be under 65 years old at the time the trust is established to avoid transfer penalties.
Third-Party Special Needs Trusts are the second main type of Special Needs Trusts. These trusts are created with assets owned by someone other than the disabled person, such as parents, grandparents, other relatives, or friends. Third-Party Trusts do not require a payback provision for Medicaid benefits upon the beneficiary’s death, making them 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.
