Recently I received a call from a long-time client in a complete panic. She had been talking to her friend about the planning that they each implemented and the friend insisted that the client established the wrong trust for her niece. The niece is on government benefits and the friend had her convinced that if the niece received the money in trust, she would have to pay back the government with those funds.
When establishing any type of trust, it is important to understand 1. Who will be the beneficiary of the trust; 2. Why the trust is being created; and, most importantly, 3. Where the money is coming from to fund the trust.
- Different rules apply depending on the beneficiary of each trust. If the beneficiary is someone collecting social security disability and Medicare benefits, the trust is going to be much more discretionary, as opposed to creating a trust for the benefit of someone receiving SSI and Medicaid benefits.
- If the trust is being established to protect assets for someone who is receiving government benefits, that trust must have language to address whether that beneficiary is allowed to receive the funds directly without losing their benefits. The restrictions that are imposed on SSI and Medicaid recipients will limit the Trustees ability to pay for certain things out of the trust (such as food and shelter).
- Lastly, but probably the most important thing, where the money is coming from to fund the trust. If the trust is being established with the assets of a beneficiary on government benefits, that trust must have provisions to pay back Medicaid for services provided. If the trust is being funded with assets from a third party, those provisions do not need to be in the trust.
These factors are just the major points in considering when you want to establish a trust. It is always better to speak to an experienced attorney to understand the why and how.