The Use of Special Needs Trusts in Estate Planning

Special Needs Trusts

The Use of Special Needs Trusts in Estate PlanningMost parents want to leave assets to their children when they die. If an individual with a significant cognitive disability receives assets, they may not have the capacity to make good decisions about how those assets are used and they may become ineligible for important federal and state resources and services. The individual can lose Social Security Income (SSI) and Medicaid and the assets may also be subject to recoupment by Medicaid (a.k.a., Medi-Cal) or by the State if the individual is receiving residential services.

Upon realizing this, parents decide to disinherit the child with disabilities, leaving everything to the non-disabled children with verbal instructions to use part of the inheritance for the benefit of the sibling with disabilities. While this may appear to be a good idea, it can have equally negative results.

For example, the non-disabled child may not use the inheritance on their sibling’s behalf, and is under no legal obligation to do so. Even if the non-disabled sibling uses the assets exactly as the parents intended, they can be claimed by creditors, can have negative tax consequences on the non-disabled sibling, and can be subject to equitable distribution in the event of divorce.

Avoid Negative Consequences

To avoid these negative consequences, it is recommended that parents establish a special needs trust. A special needs trust can protect the assets while; at the same time, making the assets available to protect and enrich the life of the person with a disability without jeopardizing benefits available from the government. A special needs trust is a unique legal document that contains a set of instructions describing how assets placed into trust will be administered on behalf of a person with a disability. It must be carefully worded and is best written by professionals familiar with disability services and programs.

Parents and other family members can use a special needs trust to hold assets for a disabled person. Even families with modest assets should establish a trust; typically, such trusts are not funded until one or both parents die. A special needs trust can be funded through life insurance or estate assets distributed through one’s Will. So long as the assets have never vested in the person with a disability, the special needs trust need not contain a provision reimbursing Medicaid and other providers.

Trust Funds Law

Trust funds can be used to purchase independent professional opinions as necessary, fill in gaps in services, provide additional recreation and other amenities, pay for a private residential placement or buy a vehicle used to transport the beneficiary of the trust.

At the death of the beneficiary, any remaining trust property is disposed according to the instructions written in the trust document by the donor. For example, property might go to other family members or to a charity. SBEMP, LLP frequently works with families to establish special needs trusts as part of their estate plan.

The governing regulations for special needs trusts can be found at 42 U.S.C. § 1396p.

For more information or to request a consultation please contact the law offices of 
SBEMP (Slovak, Baron, Empey, Murphy & Pinkney) by clicking here. 

SBEMP LLP is a full service law firm with attorney offices in Palm Springs (Palm Desert, Inland Empire, Rancho Mirage), CA; Costa Mesa (Orange County), CA; San Diego, CA; New Jersey, NJ; and New York, NY.

DISCLAIMER: This blog post does not constitute legal advice, and no attorney-client relationship is formed by reading it. This blog post may be considered ATTORNEY ADVERTISING in some states. Prior results do not guarantee a similar outcome. Additional facts or future developments may affect subjects contained within this blog post. Before acting or relying upon any information within this article, seek the advice of an attorney.

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