When Inheritance Can Create Unnecessary Problems

When most people create their Estate Planning, they focus on what or how much they are going to give to their loved ones as inheritance.  Very few think about how they are going to structure such inheritances.  Sometimes the "how" question is much more important than the "what" question.  Without careful consideration about how to structure inheritance, you could be creating unnecessary problems for your loved ones.

One of the most important questions I ask my clients during the initial interview process is whether their children or other beneficiaries have any health problems or are receiving any public benefits.  The reason I take the time to ask this question is because if their proposed beneficiaries are on public benefits, it may be necessary to structure their inheritance in a Special Needs Trust.

The most common public benefits programs, which are established and governed under the Social Security Administration, are SSDI and SSI.

SSDI is an "entitlement" program which means that eligibility is based upon how much you have paid into the Social Security system through taxes.  SSDI is a monthly stipend the amount of which is based upon your estimated Social Security benefit had you been able to work until retirement age if you did not have a disability.  Although you have to meet the definition of "disabled" in order to receive this stipend, it does not matter how much money or income you have.  An SSDI recipient is therefore able to receive an inheritance without worrying about interference with his/her SSDI stipend.

SSI is also a monthly stipend.  However, the amount of the stipend is fixed.  SSI is a "means tested" benefit: you must be under a certain asset and income level in order to qualify.  If your asset level ever exceeds the maximum allowed in order to receive SSI, you will lose all of your public benefits.  As a result, if you are an SSI recipient, an inheritance will likely throw you off public benefits.

The good news is that a properly drafted Special Needs Trust will allow the SSI recipient to enjoy the benefits of an inheritance while still maintaining his/her public benefits.  However, it is important to address these issues in the planning stages, which is why proper and comprehensive Estate Planning is essential.