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Phone: 201-345-3018

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It pays to be savvy when setting up a trust

Even as we age, we never stop filling out paperwork. This is especially true for parents of children with disabilities seeking to set up a trust for their child. Decisions about this process may affect the parent's own eligibility for Medicaid. To qualify for Medicaid benefits for a nursing home, an unmarried individual is only permitted to retain $2,000 or $4,000 depending on the Medicaid program. Transferring assets at less than what is considered fair market value comes with a penalty enacted by Congress, which results in the person who transferred those benefits being denied Medicaid for a period of time. This is something for older parents to bear in mind to protect themselves for when they may need those services.

However, there are a lot of positives in place. The penalty does not apply to transfers into a special needs trust. Therefore, the parents can transfer assets into such a trust without risk to his or her eligibility for Medicaid. Additionally, it is unnecessary to whittle down assets if the parent's assets are going into a special needs trust.

One thing to bear in mind is that a parent may be requested to provide documentation - typically bank statements - that show no gifts have been made to individuals other than the child with disabilities.

It may be advisable to work with an attorney in this type of estate planning. While the trustee of a special needs trust can open a checking account and credit card for the trust, certain types of charges - such as those related to food or shelter - may be counted as income. This may make the disabled beneficiary ineligible for receiving Supplemental Security Income (SSI) or Medicaid. Furthermore, it's difficult to know where the lines are drawn with such policies, because no comprehensive lists exists that distinguished between countable and non-countable charges.

Source: nj.com, "Biz Brain: How do I set up a trust for my disabled daughter?, Karin Price Mueller, October 1, 2012.

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