Many children want their parents' golden years to be rewarding and free from financial worries. In fact, in the event that the child dies before the parent, it is not unusual for children to leave bequests to their parents. This is particularly true of children who do not have families of their own. However, married children also often leave bequests to surviving parents. Done properly, leaving a bequest to a surviving parent can be a wise estate planning strategy. However, without careful forethought and planning, such bequests can create problems.
The risk to consider is that the bequest of the caring child may reduce the parent's eligibility for medical benefits paid by the government.Unfortunately, for many seniors, growing older means an increasing chance of illness requiring expensive medical or nursing care. Often, seniors depend upon Medicaid to pay the cost. However, Medicaid is generally only available to those with limited financial resources.
Suppose a well-meaning child creates an estate plan that provides a bequest to a living parent. Then the child dies, and the parent soon after requires expensive medical treatment. The child's bequest to the parent may be exhausted by medical costs before the parent becomes eligible for Medicaid assistance.
Is there a way to avoid the loss of the child's bequest to medical expenses? The answer is "yes." If the child's bequest to a parent had been made in the form of a Special Needs Trust, the bequest would be available to provide the quality of life the child intended, without the bequest being consumed by medical expenses.
A Special Needs Trust is designed to bequeath a deceased child's property, to assist a parent, without affecting the parent's eligibility for Medicaid. A Special Needs Trust provides valuable protection to a parent that may need government assistance with medical costs. It is worth noting that if the Special Needs Trust is created under a Living Trust, the child's bequest will not be subject to probate procedures.
As with all estate planning matters, the best course of action is to seek the assistance of an experienced attorney who's practice is focused on this type of planning.