Special Needs Trusts

Dear Len & Rosie,

I have a single brother who recently died. I and my two sisters are the heirs. One of my sisters is disabled and is on government programs including SSI and Medi-Cal. Her share of the inheritance will be $12,000, and I understand that this would knock her off of her benefits. A special needs trust was suggested, but two lawyers have already told us that it's not worth doing one for this small an inheritance. I have been told that some of the money can be spent on my sister's funeral arrangements, but that won't take much. Is there anything we can do?


Dear Ellen,

It is important to understand that SSI and Medi-Cal are tax-payer funded poverty programs. In order for your sister to maintain eligibility, she has to keep the value of her countable assets below $2,000. Under SSI and Medi-Cal rules, she is required to notify her eligibility worker by the 10th day of the month following the month in which she receives her inheritance.

This problem could have been prevented by two means. Your brother could have made a will that either disinherited your disabled sister (relying on you and your other sister to help her out when necessary), or created a special needs trust for her benefit. The idea of a special needs trust is that the money held within the trust isn't counted as being available resources to a disabled beneficiary, because of the restrictions imposed on the trustee in making distributions. Even though your brother is deceased, and cannot create a special needs trust now, it is possible to create one by court order. However, the legal fees for doing so would eat up a large portion of your sister's inheritance.

So what should your sister do? She will lose her SSI for the month in which she receives her inheritance, because the $12,000 will be counted as income. But if she spends her inheritance that month on things that she needs, she will regain her SSI eligibility the very next month, and she will not actually lose her Medi-Cal benefit at all. It is probably not appropriate for her to go on a spending spree, but she can invest her inheritance in exempt assets, such as a vehicle for her use or the use of the people who assist her.

If all else fails, she can actually give the money away after she receives it. SSI and Medi-Cal impose transfer penalties for giving money away to qualify for benefits, but these penalties are imposed only for gifts of resources, not income. Since your sister's inheritance is considered as income in the month she receives it, she could give away the money she is unable to spend down.

Len & Rosie


Dear Len & Rosie,

My mother has a revocable living trust, and has named me as her successor trustee. I have one older brother and no other siblings. My brother is supported completely by my mother, as he does not seem to be able to hold a job or take care of himself. He even lives with her. He has not been classified as disabled though he does have serious learning disabilities. My mother has set aside a special account within her trust for his care after her death. I am reluctant to be the trustee of his trust as I do not want to become his parent when our mother dies.


Dear Michele,

It's easy to understand why would do not want to become your brother's keeper after your mother passes away. He'll come after you for everything he wants or needs without regard to what his trust can afford. He will be resentful everytime you tell him no, and if his trust runs out of money, he'll blame you for spending it on him too quickly. Being a trustee for a spendthrift relative can be a thankless task.

You should talk to your mother about this. It will be better and less chaotic for her to deal with this now than for you to have to deal with finding a new trustee after your mother's death. Many banks and brokerage firms have trust departments that can serve as the trustee of your brother's trust. Or, your mother could appoint a private professional fiduciary to serve as his trustee.

If she cannot make up her mind now, she may be willing to amend the trust to allow you to name a trust company or professional fiduciary as trustee upon her death. You can still be the successor trustee of her trust in charge of dividing the trust between you and your brother. At the end of trust administration you would simply distribute your brother's share to the person or company you select to be his trustee.

If your mother is not willing to deal with this, you can still resign as trustee over your brother's trust after your mother's death. The next successor trustee in line will take over. If there are no other successor trustees named, then you can petition the court to appoint a trust company or professional fiduciary as the new trustee.

Len & Rosie


Len Tillem and Rosie McNichol are elder law attorneys. Contact them at 846 Broadway, Sonoma, CA 95476, by phone at (707) 996-4505, or on the Internet at www.lentillem.com. Len also answers legal questions each weekday, 3-4pm on Newstalk910AM.