If you have a special needs child or are planning to leave an inheritance to a child that may need to qualify for Medicaid or other government benefits, read the important information on this page. In addition to explaining how an inheritance may impact a child's ability to qualify for benefits such as Medicaid, this article answers important questions about estate planning for parents of a special needs child.
Special Needs Planning Guide
If you have a child with disabilities, proper legal and financial planning is critical to ensuring your child has a secure future. Eligibility for government benefits such as Medicaid may play a critical role in whether such child receives the healthcare he or she requires. In addition, your child is likely to have supplemental needs that will not be covered by government programs. Understanding how to navigate all these elements can be a huge challenge, especially when you are busy caring for a special needs child.A Trust to Pay for Your Child's Supplemental Needs:Even if your child receives Medicaid, SSI and other government benefits, these benefits may be insufficient to meet your child’s needs, especially if your child faces extraordinary physical or mental challenges. To pay for things your child needs that are not covered by government benefits, you may want to establish a supplemental or special needs trust.Money and property placed in a properly drafted special needs trust will not disqualify a child from receiving means-tested government benefits. The trustee of the special needs trust can use the trust funds to pay for items outlined in the trust document. After the death of the trust beneficiary, Medicaid can file a claim against assets remaining in the trust for reimbursement of amounts it paid on behalf of the trust beneficiary.
How Does a Child Qualify for Medicaid?
Medicaid is a joint federal and state means tested program that pays for health care for individuals with low incomes and limited resources and individuals that are disabled. To receive Medicaid benefits, an individual’s income and resources, also called countable assets, cannot exceed specified amounts. The income and resource requirements for Medicaid eligibility vary from state to state and by age of the child. Federal law requires Medicaid coverage be granted to children in poverty level categories. To qualify for Medicaid, a person generally cannot own more than $2,000 in countable assets.
Medically needy individuals with disabilities can also become eligible for Medicaid, despite having income in excess of Medicaid standards, by a process called spend-down. Medically needy individuals have medical expenses that greatly exceed their income or resources. For information on Medicaid eligibility requirements in your state, contact your local Medicaid office or visit your state Medicaid program website. For a list of other key steps to protecting your child in your estate plan, see our free Estate Planning Guide for Parents.
Inheritance Could Threaten Child's Medicaid
If your child relies on Medicaid, SSI or other means-tested government benefits for health care coverage and financial support, it is essential you have an estate plan that ensures your child will continue to receive these benefits after your death. If a child inherits money or property in excess of the income and resource thresholds for Medicaid, it can result in the child being disqualified from Medicaid, SSI and other state or federal programs. If this happens, any inheritance the child receives may quickly be consumed to pay medical bills and other expenses.There are several ways your estate could threaten your child’s Medicaid eligibility. If the parent of a child on Medicaid dies without a will, the child could receive an outright inheritance through the laws of intestate succession. If the child’s parent does make a will but leaves the child an inheritance through a bequest in the will, any inheritance via the will could also disqualify him from Medicaid by causing him to exceed Medicaid income and resource limits. Finally, if the child’s parent makes a living trust naming the child as beneficiary, or establishes another type of trust for support and care of the child, Medicaid can use the trust to disqualify the child from receiving government benefits on the basis that trust assets are available to the child.There are estate planning methods that can be used to put money and property in trust to pay for supplemental needs of the child that are not covered by government programs. However, creating this type of special needs or supplemental needs trust is extremely complicated and requires the use of an estate planning attorney with knowledge of Medicaid requirements. Do not attempt to create or fund a special needs trust without legal counsel.
Make Family and Friends Aware of Medicaid Eligibility Issues
In addition to making your own estate plan, it is essential to make your relatives and friends aware of the impact any inheritance or gift may have on your child’s eligibility for government benefits. Many well-intentioned friends and relatives may want to help your disabled or special needs child by naming him or her as a beneficiary of their will, trust, life insurance policy, retirement account, etc. They may not make you aware of their estate plans prior to their passing. Not only can such inheritances and gifts disqualify your child from Medicaid, they are likely to be spent on your child’s medical bills rather than providing long-term financial security for your child. By talking openly with family and friends, you can help them coordinate any planned gifts or bequests in a manner consistent with your overall strategy for meeting your child’s lifetime medical and financial needs.
What Does Medicaid Cover For Children?
To understand why Medicaid eligibility can be such an important issue when making an estate plan, it is helpful to take a look at what types of services Medicaid may cover for qualifying children. Medicaid typically pays for the following types of services for children eligible for Medicaid benefits:
Emergency medical care
Hospital care and services
X-rays and laboratory tests
Doctor’s visits, check-ups, and physical exams
Prescription and non-prescription drugs and medical supplies
Mental health care
Treatment of special health needs and pre-existing medical conditions
Outpatient surgery and services
Dentist visits, cleanings, and fillings
Eye exams and glasses
Speech services and hearing aids
Durable medical equipment
Of course, covered services may vary from state to state and may be changed from time to time.