Special Needs Trusts Discussed by LA Probate Law
The primary purpose of a third party special needs trust is to preserve government benefits for disabled beneficiaries. Usually the benefits involved are from government programs that have eligibility requirements. Receipt of an inheritance will disqualify the beneficiary for future government benefits. Suppose a couple has three adult children who will divide a $600,000 estate after both parents have died. One of the children is receiving SSI benefits due to a mental disability and has difficulties with money. Because the child is receiving SSI benefits, the child is also eligible for Medi-Cal benefits for his continuing medical and mental problems. This child is not given large amounts of money by his family because he is likely to waste anything he is given explains LA Probate Law. If the couple sets up a traditional distribution plan in their wills or trust that gives everything to their children equally, their disabled child is likely to have major financial problems. If the child outlives his parents, he will inherit approximately $200,000, which will increase his assets far above the limits set by the SSI program and by the Medi-Cal program. The child will be disqualified from those programs and will receive no further benefits. After spending his inheritance, perhaps within just a few months, the child will have no assets, and great difficulty in returning to the SSI and Medi-Cal programs.
The Special Needs Trust
Two of the programs that are based on financial need are Supplemental Security Income (SSI) and Medi-Cal, which is the California version of the Medi-Cal program explains LA Probate Law. Housing subsidies, also called the Section 8 program, In Home Support Services, food stamps, and utility payment assistance are also based on financial need. However, Social Security and Medicare are not based on financial need, but are instead based on the applicant’s age and earnings record. Instead of leaving assets directly to the disabled adult child, the parents could establish a Third Party Special Needs Trust in their living trust or wills. This trust would not be under the control of the child, and the child would not be able to revoke it and use the assets for his own purposes. The trust would have an independent trustee and would continue for the lifetime of the child. There are other types of special needs trusts that are funded with assets belonging to the beneficiary, known as Litigation Special Needs Trusts that are not discussed here. A Third Party Special Needs Trust can own various assets that are used by the child, but due to the ownership by the trust, the assets are not counted as being owned by the child. The trust could also pay for services required by the beneficiary, such as telephone, education, car repairs, etc., without affecting the beneficiary’s eligibility for the government programs. The trustee, however, would not make cash payments to the child because the payments would be counted as income for the beneficiary and could result in reduction or loss of benefits. The trust could also own a home for the child, thereby reducing the child’s expenses for rent, although there may be some reduction in SSI benefits as a result.
Good and Bad of Special Needs Trusts
The Third-Party Special Needs Trust has no obligation to notify the state or pay back Medi-Cal payments after the beneficiary’s death because the beneficiary did not own the assets. This type of trust prevents the beneficiary from controlling the assets, but also maintains a means of helping the beneficiary with the assets held by the trust. (However, when a Litigation Special Needs Trust is used, the state must be notified when the beneficiary dies and Medi-Cal payments may have to be repaid to the state from the Litigation Special Needs Trust.) When the parents’ estate plan becomes irrevocable, usually through the deaths of the parents, the special needs trust also becomes irrevocable. If the beneficiary regains mental or physical capacity after that point, making changes to the trust or revoking it can be difficult, and will require court approval states LA Probate Law. Unless the beneficiary is severely disabled and has no hope of financial survival without the government programs, a special needs trust may not be the answer.
Who Should Be Trustee?
Choosing a trustee for a Special Needs Trust is especially important because the person you choose will have authority and control over the funds in the trust expresses LA Probate Law. That means you need to be able to trust this person completely, especially if your dependent is mentally handicapped and unable to recognize any misappropriation of funds. Many people choose a parent or sibling of the disabled person to act as trustee, but you can select anyone you want, including a law firm or a financial institution. A Trustee who is unfamiliar with the rules dealing with Special Needs Trust distributions to a recipient of Supplement Security Income (“SSI”), Medi-Cal, Section 8 Housing and other government assistance programs can devastate a special needs beneficiary’s personal and financial situation. Due to pre-existing conditions, many special needs beneficiaries are reliant on Medi-Cal coverage as the sole source of health insurance coverage. For many of these beneficiaries, Medi-Cal coverage is linked to the receipt of SSI, and a loss of SSI benefits, which may be only a few hundreds of dollars per month, can lead to loss of health insurance coverage worth ten of thousands of dollar per year.
Special Needs Trusts Discussed by LA Probate Law
Latest posts by Scott Schomer, Estate Planning Attorney (see all)
- Why Would You Put Your House in a Trust? - March 20, 2019
- What is a Revocable Living Trust? - March 20, 2019
- Los Angeles Medi-Cal Planning for Future Hospice Care - March 19, 2019