Special Needs Trust in California
Many of our clients have adult children who are disabled and are receiving government benefits. If the disabled adult child were to inherit money from his or her parents, the government would stop paying benefits for the benefit of that child until all the inheritance is depleted by the disabled child. That is, the assets accumulated as a result of the parents’ lifetime of hard work that they were hoping to pass on to their child can be completely wiped out in a matter of months.
Many disabled people often received federal or state assistance to help pay for the medical and living expenses that they incur. However, many of these programs require that the recipient of the federal or state program have limited or no assets in order to receive those benefits.
Rather than leaving the assets directly to the disabled child, the parents can establish what is called the Special Needs Trust in their estate plan. This Trust will not be controlled by the child and the child will not be able to revoke the Trust or use the assets for his or her own purposes. Rather, an independent trustee would need to manage the assets for the disabled child during that child’s lifetime. The trustee can use various assets for the benefit of the child under the strict rules that are in place under the various federal and state programs. When administered correctly, these Special Needs Trust can provide housing and/or other additional day to day living expenses for the disabled child without being counted as an asset of the child for determining federal or state assistance. That is, the trust can pay for things such as telephone, education, and medical care that is not provided by Medi-Cal, without effecting the beneficiary’s eligibility for these programs.
One limit of a Special Needs Trust is the Trustee cannot make cash payments to the child directly, as these cash payments would be deemed assets to the adult child and the child could lose their eligibility for government assistance.
Many of our clients have considered Special Needs Trusts for protecting disabled beneficiaries, including children or grandchildren. Consultation with an experienced estate planning attorney is necessary in order to ensure that a Special Needs Trust makes sense, given the specific circumstances. Additionally, the rules for administering Special Needs Trusts is complex and very strict. Violating the rules have the dire consequence of making the disabled child no longer eligible for the government assistance which he or she rely on. If you have a child or grandchild who is receiving or may receive in the future government assistance due to disability or illness, it is important consider the use of a Special Needs Trust as part of your estate plan.