People with special needs depend on public benefits and familial support. So what happens when the family member responsible for care giving dies? How will inheritances best help the special needs person and not disqualify them from welfare benefits?
Welfare benefits (e.g., Medi-Cal) are asset sensitive to countable assets which may result in disqualification. Without such benefits any inheritance will be spent-down quickly. Disqualification can be avoided, however, by making the inheritance supplement and not replace public benefits. Special Needs Trusts (“SNTS”) prevent disqualification as trust assets are not counted because the trustee has absolute discretion over distributions and ownership of the assets.

SNT’s provide the comforts of life. The SNT can purchase a wide variety of personal property and services such as supplementary nursing care, personal care services (e.g., massages, swimming), travel, entertainment equipment, furniture and furnishings, legal services, maintenance and repairs, and a place to live-in. Also, the SNT provides an advocate to represent your beneficiary after you die. Keep an up-to-date letter of instructions to the subsequent SNT trustee. These instructions tell the trustee the beneficiary’s medical condition, health care providers, daily routines, likes and dislikes, and where the beneficiary shall reside after the care giver dies. There are three kinds of SNT’s: first party, third party, and pooled trusts. First party trusts are not discussed here. A third party SNT controls assets transferred during the settlor’s life or at the settlor’s death. Any remaining assets left when the beneficiary dies go to whomever the settlor wants to — usually other family members. A pooled SNT, however, is a collective SNT established and managed by a “not for profit” organization. The pooled SNT often requires that some or all of any remaining funds in the trust remain with the not-for-profit organization.

Costs depend largely on the type of SNT and whether the trustee is paid. A third party SNT involves attorney fees. Other costs include trustee fees and other fees to tax preparers, attorneys and investment managers. A pooled SNT has no attorney fees (i.e., no need to draft trust document) but there are “buy-in” fees and significant recurring annual costs.

Pooled SNT’s attract families with small inheritances (under $100,000) and/or families who do not have anyone to name as trustee. They usually serve persons with the particular disability. That said, third party SNT’s attract families with more than $100,000 in assets, where there is real property to be kept, where there is a family member to act as trustee (without pay), and where the settlor creating the trust wants any unused assets to go to family members.

How to proceed? First determine how much to leave to your special needs beneficiary. Treating children fairly does not mean treating them equally (as parents prefer). Also, consider future costs and the availability of public benefits. Then, you may wish to consult an attorney about a Special Needs Trust.

Editor’s Note: Attorney Dennis A. Fordham is a Board Certified Specialist in Estate Planning, Trust and Probate Law. Dennis concentrates his practice in the areas of estate planning and various aspects of elder law, including Medi-Cal benefits. Mr. Fordham was qualified as a Certified Specialist in 2009 by the State Bar of California Board of Legal Specialization, and is licensed to practice law in California and New York. He earned his BA at Columbia University, his JD at the State University of New York at Buffalo, and his LLM in Taxation at New York University. His office is located on the 2nd Floor at 55 First Street, Lakeport, California and he can be reached by calling 707-263-3235 or e-mail at Dennis@DennisFordhamLaw.com.

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