Special Needs Planning

When planning for someone with a major disability, the essential question is: What will happen when you are no longer around to provide care for them? Who will take over their care, manage their finances, and handle their inheritance, if any, in a way that doesn’t jeopardize their public benefits?

This guide applies equally to children as it does to spouses, siblings, or any loved one with a significant disability. With roughly 70 million disabled adults in the U.S.—about one in four—ensuring that you, and they, have a well thought out plan is critical.

Inheritance

If you plan to leave an inheritance for a disabled person, you must plan carefully. 

Many people with disabilities depend on government benefits. These benefits are often means-tested, requiring the disabled individual to qualify based on their assets or income. Even a modest inheritance given outright can disqualify your loved one from Supplemental Security Income (SSI) or Medicaid coverage. 

Asset and Income Qualification in California

Fortunately, California has recently removed asset limits from the qualification criteria for Medi-Cal (California's Medicaid program), although income limits continue to apply. However, Supplemental Security Income (SSI) retains a stringent asset limit of $2,000 for individuals.

Given the complexity and frequent changes in laws and regulations in this area, the fundamental question continues to stay the same: How can you arrange an inheritance or other financial support for your loved one without risking their eligibility for government benefits? And the answer usually involves a Special Needs Trust.

Special Needs Trust

A Special Needs Trust (SNT) is a trust that holds title to property for the benefit of a disabled person without endangering their eligibility for government benefits. The trust is controlled by a trustee, with the disabled individual as the beneficiary. If you are the trustee, you can appoint a successor trustee to take over after you die. 

The SNT can be set up to be created after you die. It can be revocable or irrevocable, meaning you can change it or not change it once created. 

Because the trustee is in control of the trust, the disabled individual does not have to report the assets in the trust to qualify for benefits. In addition, certain qualifying expenses (such as a wheelchair, or travel) do not count as income for the beneficiary.

An often overlooked, but no less important benefit of an SNT is the trustee’s role as a protector of the disabled person. Because you can choose your trustee, who has a fiduciary responsibility to act for the benefit of the disabled individual, it is far more difficult for the assets to be misused or stolen by others.

SNTs are not for the general practitioner. You need an attorney who understands the nuances of setting up this type of trust properly. At Mansoor Law Firm, attorney Salik S. Mansoor is well-versed in this area. Contact us today to learn more.  

CalABLE Accounts

An ABLE account (called CalABLE in California) allows those with disabilities to receive tax-free distributions for Qualified Disability Expenses, without losing access to federal benefits such as Medicaid, SSI or SSDI, assuming that the amount in the ABLE account stays below a certain threshold. This is an excellent option as an alternative or supplement to a SNT.

Types of Special Needs Trusts

There are two main types of SNTs: First-Party and Third-Party. 

A First-Party SNT is funded by the disabled person themselves if they are under 65 using their own assets. Someone else, such as a parent or conservator, can establish a First-Party SNT, on behalf of the disabled individual using his or her assets. 

Someone else must be the trustee, with the disabled person as the beneficiary.

A special type of First-Party SNT is a “pooled trust.” This is set up by a non-profit on behalf of several beneficiaries and the pooled amounts are invested together. There are no age restrictions with a pooled trust.

The main “Issue” with the First-Party SNT is that after the disabled individual dies, the State of California will seek reimbursement from any assets remaining for the Medi-Cal expenses it incurred. 

This is the main benefit of the Third-Party SNT, which, as the name suggests, is set up by a third person on behalf of the disabled beneficiary. Funds remaining in a Third-Party SNT are out of the reach of the state, leaving the disabled person free to distribute them to his own beneficiaries. 

There are other considerations: whether the trust should be revocable or irrevocable, taxes, the inclusion of “trust protectors,” etc. Those discussions are beyond our scope here. 

An estate planning law firm that specializes in this area of law is a vital resource for SNTs.

Timing of Special Needs Trusts

If you have a loved one with a significant disability, it is in your best interest to create an SNT as soon as possible to allow the funds to grow over a longer period of time. 

A Special Needs Trust as A Part of a Larger Strategic Estate Plan

An SNT is but one part of a comprehensive strategy that you must establish for the benefit of the disabled individual. Questions such as, “Who will care for your loved one after you pass?” “Who will ensure their quality of life is maintained?” “Where will they live?” are all part of a broader plan for the well-being of the individual. Careful documentation of a lifelong plan is a critical part of the planning that is required. 

This planning must also fit into your own estate plan. The special needs trust must be incorporated into a broader set of documents such as a living trust, wills, and powers of attorney. In our view, the special needs trust should not be a standalone document. 

Contact Us Today

For expert assistance in setting up a Special Needs Trust or planning for a loved one with disabilities, contact Mansoor Law Firm today. We offer comprehensive support to help you navigate these complex issues and secure a stable future for your loved one. Please fill out the form below, email info@mansoorlawfirm.com, or call (805) 900-7850.