Estate Planning & Special Needs Trusts

The Attorneys at Waterson & Huth, LLP understand the unique questions and concerns that you may have when you begin planning for your financial futures. This is especially true if you, or a family member has special needs. We take the time to help you identify your family’s needs and offer solutions to meet those needs.

It is important for parents (or caregiving adult children) to plan for their own future as well as planning for their loved ones with special needs. Who will take care of your finances if you are unable to do so? Who has authority to give medical consent for you if you are incapacitated? Have you nominated a guardian for your minor children or a successor conservator for your adult child with disabilities? Will your loved one with special needs lose his or her public benefits because of a direct inheritance when you pass away? Have you considered establishing a special needs trust or an ABLE (CalABLE) Account? If you are the primary caregiver for an individual with special needs, have you planned for the time when you are no longer able to do so? When is the last time you reviewed your beneficiary designations on your life insurance policy or retirement plan? We will help you navigate all of these issues so that your plan meets the needs of your family.

We have been members of the Academy of Special Needs Planners since 2008. We can guide you through the process of establishing the appropriate special needs trust or advising you about available alternatives.

Many attorneys create trusts, and some even create special needs trusts, often using pre-written templates. So why, you may ask, do you really need an attorney whose practice focuses on special needs planning?

It is important that special needs trusts not be unnecessarily inflexible and generic, which is what can happen with a “one size fits all” trust template. The eligibility rules for Medicaid are different from those for Supplemental Security Income which are different from those for Section 8 housing. While the generic trust may work if properly administered, without proper counsel the trust is likely not to be properly administered. The choice of trustee is at least as important as the wording of the trust. But even in drafting the trust, it can be important to customize it to the particular child’s needs. And who should appoint successor trustees if you are not around to do it yourself? Do you want an advisory committee to make sure the trustee understands the beneficiary’s needs and best uses the money you leave?

Attorneys without special needs experience time and time again make the mistake of putting a “pay-back” provision into the trust rather than allowing the remainder of the trust to go to others upon the special needs child’s death. While these “pay-back” provisions are necessary in certain types of special needs trusts, an attorney who knows the difference can save your family a significant amount of money.

Estate planning by parents who have children with disabilities involves many challenges, including the following:

  • How do you leave funds for the benefit of the child without causing the child to lose important public benefits?
  • How do you make sure that the funds are well managed?
  • How do you make sure that your other children are not over-burdened with caring for the disabled sibling, and that any burdens fall relatively evenly among the siblings?
  • What is fair in terms of distributing your estate between your disabled child and your other children?
  • How do you make sure there’s enough money to meet your disabled child’s needs?

Often, parents of children with special needs try to resolve these issues by leaving their estates to their other children, leaving nothing to the disabled children. They have a number of reasons for this approach: The disabled child should not receive anything because she cannot manage money and would lose her benefits. She does not need any inheritance because she will be taken care of by the public benefits she receives. The other children will take care of their sister.

This approach is to be discouraged for a number of reasons. First, public benefits programs are often inadequate. They need to be supplemented with other resources. Second, both public benefits programs and individual circumstances change over time. What is working today, may not work tomorrow. Other resources need to be available, just in case. Third, relying on one’s other children to take care of their siblings places an undue burden on them and can strain relations between them. It makes it unclear whether inherited money belongs to the healthy child to spend as he pleases, or whether he must set it aside for his disabled sister. If one child sets money aside, and the other does not, resentments can build that may split the family forever.

The better answer to many of these questions is a “Special Needs Trust.” Such trusts fulfill two primary functions: The first is to manage funds for someone who may not be able to do so himself or herself due to a disability. The second is to preserve the beneficiary’s eligibility for public benefits, whether that be Medicaid (MediCal), Supplemental Security Income (SSI), public housing, or any other program. Special Needs Trusts come into play in a multitude of situations, including parents planning for a disabled child’s future, a disabled individual coming into an inheritance or winning or settling a personal injury claim, or one spouse planning for a disabled spouse.

First, a short explanation of what trusts are and how they work: A trust is a form of ownership of property, whether real estate or investments, where one person – the trustee – manages such property for the benefit of someone else – the beneficiary. The trustee must follow the instructions laid out in the trust agreement as to how to spend the trust funds on the beneficiary’s behalf – whether and when to distribute the trust income and principal. In general, trusts fall into two main categories: self-settled trusts that the beneficiary creates for himself with his own money and third-party trusts that one person creates and funds for the benefit of someone else.

Each situation and each benefit program has its own rules which affect the drafting, funding and administration of special needs trusts. The public benefit programs in many ways track the treatment of trusts in terms of creditor protection. Just as you generally cannot create a trust for your own benefit and protect the trust funds from creditors, you usually cannot create a trust for your own benefit and have the funds uncountable for purposes of Medicaid, SSI and other public benefits programs.

However, Medicaid (Medi-Cal) and SSI have provided for “safe harbors” that permit the creation of self-settled supplemental needs trusts in certain circumstances. These are often referred to as (d)(4)(A) or “payback” trusts referring to the enabling statute and the requirement that at the death of the beneficiary the state be paid back its Medicaid expenditures on her behalf to the extent sufficient funds remain in the trust.

So-called “third-party” special needs trusts are usually created by parents and grandparents for the benefit of children and grandchildren with disabilities. These can be much more liberal than the statutory self-settled special needs trust and do not need to include a payback provision.

For more information about special needs planning in general and special needs trusts in particular, contact our office today.

You have completed your Estate and Special Needs Planning … Now what?

Once you havecompleted the steps of meeting with a special needs planner and establishing an appropriate special needs plan, you might think that your interaction with your lawyer is over. After all, you have got a plan! But as we all know, plans change, so it’s important to stay in close contact with your special needs planner throughout your life. In case you have not thought of checking in with your special needs planner in a while, here are five events that should trigger an immediate call to your attorney.

1. Your Family Member with Special Needs Is Turning 18

Once your family member hits the age of majority, you will no longer be able to make a lot of the decisions that you have probably been making for him during his childhood. Your special needs planner can discuss various options to help you through this transition, including the preparation of health care proxies and durable powers of attorney, if your family member is competent, or consider conservatorship if he’s not. But in no case should you simply ignore the problem.

2. You Move to Another State

Although some federal benefit programs like Supplemental Security Income (SSI) and Social Security Disability Insurance (SSDI) have national rules, there can be smaller details that apply at the state level. Likewise, there are usually significant variations in how state Medicaid programs are run. Therefore, if you move to another state, you have to speak with a special needs planner who is familiar with local rules and programs, and not just rely on your old plan.

3. Your Financial Situation Changes

If you were making a lot of money and now you are not, or vice versa, your special needs plan is probably going to change. Assumptions about how to fund a special needs trust may go out the window. If your income becomes drastically lower, it may be time to consider using life insurance to fund a trust in place of other assets. On the other hand, if you are earning much more, you may have to consider tax planning strategies that you didn’t have to worry about before. In either case, a call to your planner is definitely in order.

4. You Retire, Become Disabled or Pass Away

When the parent of a child who has had a disability that manifested while the child was still young retires, becomes disabled or dies, the child may qualify for benefits on the parent’s work record. If you retire or become disabled yourself, call your planner immediately. Obviously, if a person who creates a special needs plan dies, there is going to be a lot of work to do to implement the next stages of that plan.

5. The Person with Special Needs Health Changes

Sometimes people who were previously ill become better and no longer need a restrictive special needs plan. Often, they get worse and need additional planning. In all cases, if the beneficiary of your special needs plan dies, there will be a lot of work to do, including the potential payoff of government liens and the disposition of trust assets or the amendment of your special needs plan. Once again, if the beneficiary’s health changes, your plan is going to have to change too. Your planner can walk you through all of the available options.

Do you have everything you need?

If your child has special needs, a standard estate plan — will, trust, power of attorney, and health care proxy — may not be adequate for your family. If your child will not be able to support herself or live independently as an adult, you need to make special provision for her in your estate plan. Here are three must-have documents:

Special Needs Trust. Instead of leaving your estate directly to a disabled child, the funds should be left in a specially-drafted trust for the child’s benefit. This will ensure that the funds are properly managed for the child’s lifetime. And provided that the trust is properly administered, the trust funds will not be countable, which helps to preserve your child’s eligibility for public benefits such as SSI and Medicaid.

Guardianship/Conservatorship Nomination. Your will should include a guardianship nomination for all of your minor children. But when your child turns 18, she is considered to be an adult by law, even if her disabilities are very severe. Taking the time to select a conservator for your disabled child reduces stress and uncertainty for other familymembers after your death: the person you nominate as conservator will typically be given preference by the court.

Letter of Intent. This is a non-binding document that captures vital information about your child for future caregivers and trustees. It can include information about your child’s routines, preferences, medical history, allergies, and so on. As parents, you have gathered a lifetime’s worth of information about your child, information that will be invaluable to your child’s future caregivers. As your attorneys, we will keep a copy of the Letter of Intent with your other estate planning documents.

Give us a call for more information regarding special needs planning, estate planning, special needs trusts, or ABLE (CalABLE) accounts.