I recently met with a woman in her late 50’s who about ten years ago suffered a traumatic brain injury (“TBI”) that left her disabled. “Barbara,” who was divorced with no children, had an insufficient number of countable work credits and was ineligible for both Social Security Disability Insurance (“SSDI”) benefits and Medicare coverage afforded to SSDI recipients two years after they receive SSDI. Instead, she has been receiving Supplemental Security Income (“SSI”) benefits at the maximum amount of $735 per month, and the automatic Medicaid health insurance provided to every SSI recipient in most states, including New York.

Recently Barbara’s ex-husband “Roger” died, and unexpectedly (to Barbara at least) left Barbara his entire estate, comprising a home in Connecticut plus cash and other liquid assets worth $300,000. And, since Barbara and Roger were married at least 10 years and Barbara has not remarried, Barbara is now eligible to receive Roger’s Social Security Retirement check of approximately $1,800 per month.

While Barbara was pleased with the inheritance, it provides her with some challenges. Because the inherited assets put her well above the SSI resource allowance of $2,000, and because Roger’s Social Security benefit (which under SSI rules Barbara must apply for) will put Barbara’s income over the $735 SSI monthly threshold, Barbara will become ineligible for SSI. While receiving additional income is ordinarily welcome, in this case when Barbara loses her SSI, she will also lose her Medicaid insurance. Since she is under 65 and cannot receive Medicare until that time, she is at risk of becoming uninsured during a period of her life when she has significant medical needs.

Fortunately, Barbara has some options. One possibility would be for her to transfer the inherited assets above the $2,000 SSI resource threshold into a “first party” Supplemental Needs Trust (“SNT”), and to transfer her monthly income over the $735 SSI threshold (or about $1,065 per month) into a “Pooled Income Trust” that is administered by a charitable organization. Taking both these steps will then allow Barbara to remain eligible for both SSI and Medicaid.

That strategy, however, has several downsides. The first party SNT must include a “payback” provision that would require that, upon Barbara’s death, the Medicaid benefits paid to Barbara during her lifetime must be repaid before the remaining trust assets, if any, can be distributed to Barbara’s beneficiaries. And, as a condition of Barbara’s continued SSI and Medicaid eligibility, any excess income in the Pooled Income Trust would be retained by the charity administering the Pooled Income Trust after Barbara’s death.

But for Barbara an even bigger impediment is that in using the SNT and Pooled Income Trusts, she would need to give up significant control over the inherited assets, as she would be ineligible to be the Trustee of either trust and would have no say in how the assets are invested or distributed for her benefit.

But Barbara has another choice: she can take advantage of the Medicaid expansion under the Affordable Care Act (“ACA”), as her new annual income of approximately $21,600 places her just over the allowable income threshold ($20,783) for free coverage under Medicaid expansion, but still leaves her eligible for significant subsidies available under the ACA. Significantly, eligibility for Medicaid under the ACA is solely determined by income, and Barbara would not need to transfer her inherited resources into a “payback” trust to remain Medicaid eligible. Instead, I’ve advised Barbara, who’s pushing 60, to transfer the inherited assets into a Medicaid Asset Protection Trust (“MAPT”) so that should she someday apply for nursing home Medicaid coverage after expiration of the five-year “look back” period, none of the assets held in the MAPT will be subject to a spend-down requirement before she can obtain long-term care Medicaid coverage. And unlike the first party SNT, Barbara can be a Trustee of the MAPT.

As this example demonstrates, elder law and special needs planning issues have significant overlap, and obtaining the counsel of an attorney knowledgeable in both elder law and special needs planning will help ensure the best outcome.

Richard J. Shapiro is a partner with the Hudson Valley law firm of Blustein, Shapiro, Frank & Barone, LLP. He is the author of the 2017 book Secure Your Legacy: Estate Planning and Elder Law for Today’s American Family published by Archway Publishing. Mr. Shapiro, who is “AV” rated by Martindale-Hubbell and named a “Super Lawyer” in Estate Planning and Probate law, is a member of WealthCounsel, ElderCounsel, the National Academy of Elder Law Attorneys, the New York State Bar Association (Trusts and Estates and Elder Law Sections), and the Hudson Valley Estate Planning Council. You can reach him at (845) 291-0011 or at [email protected]. The information in this article is for general information only and is not, nor is it intended to be, legal advice.