What You Need to Know About Estate Planning & Special Needs Trusts

The Use of Special Needs Trusts in Estate Planning

Most 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.

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 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.

Recent Trust Litigation Victory For SBEMP: Co-Trustee Removed For Violations of Fiduciary Duties

Case Summary:
As a result of the intervention of SBEMP, a recent court decision ordered a co-trustee in violation of fiduciary duties be removed from his position as Co-Trustee of the Trust.

Case Background:
BN’s brother died, leaving a trust naming her and his roommate (with whom he did not have a legal relationship) as Co-Trustees; and granting the roommate, WM, a life estate to remain in the house.

After several violations of fiduciary duties, BN petitioned to remove WM as a co-trustee.

The fiduciary violations included; but were not limited to: falsifying the decedent’s death certificate, with the intention of divesting the Trust beneficiaries from their inheritances; preventing BN from administering the Trust and performing her trustee duties (e.g., accessing the Trust-owned real property and documentation relating to the other trust assets and its obligations); and engaging in a campaign of hostility toward BN and the other Trust beneficiaries.

WM admitted he falsified his relationship on the death certificate and interfered with administration by not giving BN access to the information.

The court ordered that WM provide BM with all information in his control necessary to determine the assets of the Trust, income of the Trust, expenditures of the Trust, and expenses of the Trust for proper accounting.

The court ordered WM to allow access to the property sufficient to allow BN, or her designated agent, to photograph or video record the property and all of its contents for the purpose of identifying and marshaling the assets of the Trust and to allow for a proper appraisal and accounting.

The court also removed WM as Co-Trustee of the Trust and BN is appointed sole Trustee.

When is the Right Time to Get Your Estate Planning Affairs in Order?

The answer is, now. Whether it is because you have yet to do your estate plan or that your plan is needing updating due to the passage of time, change in laws, or life events such as marriage, divorce, incapacity, death, or the birth or adoption of a child.

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Estate Planning and Special Needs Speaking Engagements and On-Site Training.

SBEMP offers free speaking engagements and on-site check-ups on the topics of estate planning, special needs trusts, guardianships/ conservatorships, and special education. Contact SBEMP to schedule a special engagement or on-site check-up for your group.

With locations in Palm Springs, CA, New Jersey, NJ, and Manhattan, NY, SBEMP’S Trusts, Estates & Probate Department is comprised of attorneys with decades of experience in a broad range of issues from planning to administration to when incapacity or death occurs – all while using a mindful approach to identify a client’s special, business or litigation needs. SBEMP’S Special Needs & Elder Law Department has over twenty years of experience including the following highly specialized practice areas: health care insurance, short-term and long-term disability insurance, Medicaid, Medicare, special needs trusts, trust administration, estate planning & administration, guardianships and conservatorships, and accessing disability-based benefits.

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