Special Needs Trusts
Millions of Americans have disabled family members. The cause may be Down's Syndrome, schizophrenia, cerebral palsy, autism, or countless other physical or mental illnesses.
Even if you don't have a disabled family member, you know many individuals who do. Mental and physical problems do not discriminate against particular racial or socio-economic groups.
If you have a child, in particular, who is disabled, or if you know someone who does, you simply must know about Special Needs Trusts. These trusts are designed to hold assets for the benefit of an individual who is receiving public benefits and to help that person without disturbing eligibility.
If the person is receiving Supplemental Security Income (SSI) or Medi-Cal, they would continue to do so. If they are in subsidized housing, they would continue to live there.
Why use the Special Needs Trust for a disabled individual?
1. The disabled beneficiary will keep his/her income (SSI) and health care (Medi-Cal) benefits.
2. Money in the trust can be used to pay for items and services not covered by public benefits
3. Money in the trust can be used to pay for a doctor who will not accept Medi-Cal.
4. Parents control where trust assets go after the child is deceased.
The only alternatives to the Special Needs Trust are (1) leaving nothing to the child; or (2) leaving money in trust that does not have these restrictions. This latter course of action will cause the loss of public benefits. After the assets are consumed, the child will go back on public benefits. In planning these trusts, there are tax and family issues to address.
SPECIAL NEEDS TRUSTS
A Special Needs Trust (SNT) is the ideal planning tool if you have a disabled child or other family member. It holds assets for a disabled person without disturbing eligibility for public benefits such as Medi-Cal and Supplemental Security Income (SSI). SNT assets are used to supplement public benefits. The trust pays for items and services that the public benefits system does not provide.
Do you have a disabled child or other family member?
WHAT IS A SPECIAL NEEDS TRUST?
A Special Needs Trust holds assets for the benefit of an individual who is receiving or may receive public benefits such as Supplemental Security Income (SSI) and Medi-Cal. If properly drafted, having assets in this trust does not disturb the person's eligibility for public benefits.
WHEN DOES IT MAKE SENSE TO SET UP A SPECIAL NEEDS TRUST?
If you have a disabled child - such that your child is unable to work and hold a job - the Special Needs Trust should be part of your estate plan.
IS THERE A LIMIT TO THE NUMBER OF DOLLARS THAT CAN BE IN THIS TRUST FOR THE BENEFIT OF A DISABLED PERSON?
No. We have created trusts that will ultimately hold as little as $30,000 and we have created trusts that hold as much as $3.4 million.
DOES THE SPECIAL NEEDS TRUST FOR MY DISABLED CHILD OR FAMILY MEMBER REPLACE MY LIVING TRUST?
No. Your living trust will continue to hold your assets as long as you live. In most cases, the disabled child's inheritance will be distributed from the living trust to the Special Needs Trust at the time of your death.
WILL MONEY GO INTO THE SPECIAL NEEDS TRUST FOR MY CHILD WHILE I AM LIVING?
Typically, the trust is funded or receives money only upon your death.
Grandparents or other relatives might leave something to this trust, as well. You might also decide to gift or transfer money into the trust while you are living. Doing so raises a number of tax issues about which you must obtain appropriate advice.
WHAT CAN MONEY IN THE TRUST BE USED FOR?
Generally speaking, money in the trust can be used to pay for items and services that are not provided to the beneficiary by the public benefits system. For example, money in the trust can buy the beneficiary a television or pay someone to be the individual's companion while at home or while on a trip.
WHY SHOULD I BOTHER WITH THE TRUST? WHY NOT LEAVE EVERYTHING TO MY DISABLED CHILD'S BROTHER AND LET HIS BROTHER TAKE CARE OF THE MONEY?
It is important to have funds segregated and irrevocably devoted to the disabled child. His brother, however well meaning, could face a divorce or be sued or die before his disabled sibling. In any of these circumstances, the money could be lost and become unavailable.
WHO SHOULD BE THE TRUSTEE OF A SPECIAL NEEDS TRUST?
The trustee should be someone who is very responsible and who will be devoted to the beneficiary. This is often a relative, although it can be a professional fiduciary or "professional trustee" if no family member is available. This is a very complicated question that you must discuss with your attorney.
WHAT HAPPENS WITH MONEY REMAINING IN THE TRUST WHEN THE BENEFICIARY DIES?
If you create this trust for the benefit of your child, money remaining in the trust goes to individuals you name in the Special Needs Trust. It is up to you. Alternatively, remaining assets can go to your favorite charity.
DOES THIS MEAN THAT THE STATE WILL NOT BE PAID BACK THE MONEY THAT THE MEDI-CAL PROGRAM PAID FOR THE CHILD'S MEDICAL CARE?
That is correct. When parents establish a trust for a child, which is most typical, the state does not get its money back.
IF A DISABLED PERSON INHERITS MONEY, CAN A SPECIAL NEEDS TRUST HELP?
Yes. In most circumstances, a disabled individual who is receiving public benefits can shift inherited assets - or other assets he receives - into such a trust without disturbing eligibility for public benefits. The trust will typically be created by his parents or through the Courts. He cannot establish it himself, although his money can go into it. If this is done, the state does have the right to reimbursement for any Medi-Cal benefits that it pays.
BOTTOM LINE: If you have a disabled child, or a loved one who is receiving or may receive public benefits, this trust is right for you. It is an essential part of your estate plan.