There are many different tools in the estate planning toolkit, and the ideal choice will depend upon the circumstances. This is why personalized attention is necessary, and this is exactly what you receive when you work with our estate planning lawyers. Your financial situation and the exact nature of your intentions will be part of the equation, and you should also consider the life situation of each person your desire to benefit during life and after your death.
If you have a person with disabilities in family, it is important to obtain legal advice before you make any estate planning decisions that will impact this individual. A very significant percentage of persons with disabilities rely on Medi-Cal as a source of health insurance. Another important government program for special needs persons is Supplemental Security Income, often referred to as SSI. As the name would suggest, this program provides a modest stream of income to people that cannot earn income on their own because of their limitations.
Medi-Cal and Supplemental Security Income are need-based programs. To gain eligibility, applicants must be able to prove that they have a significant level of financial need. Once eligibility is granted, it is not necessarily permanent. A change in financial status could cause a loss of this government assistance. An inheritance is one change in financial status that could cause a person receiving SSI or Medi-Cal to lose this valuable government assistance.
You can make life more comfortable for a disabled loved without jeopardizing his or her needs based government assistance through special needs planning that includes the creation of a special needs trust. Special needs trusts are also sometimes referred to as supplemental needs trusts. A special needs trust that holds the assets a gift or inheritance from a parent, grandparent, other relative is sometimes referred to as a third-party special needs trust. This is because the source of the money and other assets in the trust is from someone other than the special needs person.
When you establish a special needs trust, you appoint a person to manage or administer the trust. That person is called the trustee. The person with disabilities is referred to as the beneficiary. The beneficiary would not be allowed to serve as trustee or in any other way directly handle any of the income or assets that have been conveyed into the trust. The trustee would not provide direct cash distributions to the beneficiary. However, the trustee would be empowered to use income and assets in the trust to make the beneficiary more comfortable by satisfying supplemental needs without impacting benefit eligibility. The trustee could use the income and assets of the special needs trust to pay for things the beneficiary needs — such as durable medical equipment, therapy, medical procedures provided through Medi-Cal, education, entertainment and other needs. Rent, utilities and groceries can also be paid for, but there may be a reduction in benefits if the trustee pays for food and shelter — so the trustee should consult with an estate planning attorney specializing in the administration of special needs trusts before making distributions for food and shelter.
First Party or Self-Settled Special Needs Trusts
Sometimes a person with a disability will come into some money through a personal injury settlement or judgment or some other source. Under these circumstances, a parent, a grandparent, a guardian, or a court could establish a first party or self-settled supplemental needs trust for the benefit of the individual in question. Under a new law passed in 2016, some persons with disabilities can establish their own special needs trusts.
The general parameters of first party special needs trusts are the same as they are with a third-party special needs trust. However, upon the death of the beneficiary of a first party special needs trust, the State of California (and any other state in which the disabled beneficiary resided and received Medicaid services) would be entitled to reimbursement for all Medicaid benefits paid on that person’s behalf (but limited to no more than what remains in the first party special needs trust at death). If there is anything remaining after the state is repaid, that amount can be directed to other remainder beneficiaries, usually the spouse, children or siblings of the person with disabilities.
View Our Upcoming Special Needs Planning Webinar!
We have shared a little bit of basic information in this relatively brief blog post. If you would like to learn more, we urge you to tune into our upcoming webinar on the subject. It is being held on Wednesday, August 22 at 12 noon and it will last for about an hour. You can click the following link to register: Riverside Special Needs Trusts or by calling our office at 951-888-1460. You can also download our guide on administering Special Needs Trusts by going to: Administering a Special Needs Trust: A Handbook for Trustees. Sandoval Legacy Group, a division of Holstrom, Block & Parke, A Professional Law Corporation, is a member of The Special Needs Alliance and The Academy of Special Needs Planners.
Have a question? Ask Dennis.