By: The American Academy of Estate Planning Attorneys
We all want to make sure our children are financially secure after we’re gone. But accomplishing this means more than just deciding what portion of your estate each child will inherit. It also means determining how and when each child will receive their inheritance. When you have a child with special needs – particularly when that child depends on government benefits like Medi-Cal or Supplemental Security Income (SSI) – how you pass on an inheritance becomes an absolutely critical question.
Your child’s eligibility for these programs is based on their income and resources. This means that if you pass away leaving even a modest inheritance directly to your child, they could be pushed over the strict eligibility limits for their government benefits. As a result of their inheritance, your child could lose Medi-Cal or SSI benefits, at least until they use up their inheritance and once again meet the eligibility requirements. With you gone, they would find themselves in quite a different situation when they again qualified for benefits.
During your lifetime, your child’s government benefits pay for much-needed basic care and services, while you help pay for all the extra comforts that enrich and improve your child’s quality of life. If you were gone and they had been forced to deplete their inheritance, your child could be left with the bare minimum provided by government assistance, and no more.
Special Needs Trust
One way to leave your child a full inheritance while ensuring that their benefits continue uninterrupted is to establish a Special Needs Trust. If you already have a Revocable Living Trust, you can accomplish this by doing two things: including the appropriate special needs language in your already-existing Trust, and making sure your child’s Trustee understands the very specific rules that apply to Special Needs Trusts.
Since the government counts mandatory Trust distributions as income to your child, your Special Needs Trust must be structured so that the Trustee has full discretion over when to make distributions for the benefit of your child. And since government rules provide that funds from Special Needs Trusts can only be used to supplement your child’s benefits, rather than to provide necessities, the Trust document needs to limit distributions to supplemental purposes only.
This means the Trustee can’t use the Trust to pay for things like food, housing, clothes, or routine medical bills for your special needs child. Otherwise, the assets of the Trust will be considered when it comes to Medi-Cal or SSI eligibility. Instead, the Trust can be used to cover a range of supplemental expenses for your child’s benefit, including paying for recreation, entertainment, and vacations, funding hobbies, and covering educational costs.
No one can replace the nurturing, love, and support you provide to your child on a daily basis. However, the idea behind a Special Needs Trust is to help fill the financial gap after you’re gone, allowing your child to keep her government benefits while enjoying a quality of life similar to the one she’s always had.
It’s important to understand that benefits planning is a highly specialized area of law that involves a complex interplay of state and federal rules. The requirements vary from state to state, and if you are not aware of your state’s specific rules, your child’s chances of eligibility for government assistance can be severely diminished. It is essential that you consult with an attorney who is experienced not only in estate planning, but also in special needs planning. Otherwise, you could end up with a plan that does not comply with your state’s rules, and your special needs child could lose valuable benefits.