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Los
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CREATING
A SPECIAL NEEDS TRUST IN LOS ANGELES:
As
special needs parents, we gear our planning based on personal
experience. When leaving an inheritance to a special needs
child, much attention should be given to the selection of the
trustee and the special needs language as well as the expected
cost of living of the child.
The
Special Needs Trust is then developed to assess and manage
inheritances and other resources while maintaining the child's
eligibility for the much desired public assistance benefits.
Generally,
parents or others may fund the trust with resources they deems
appropriate for the to the trust. The Special Needs trust assets
are managed by a trustee on behalf of the child with the
disability.
The
government agencies honor special needs trusts, but many agencies
have imposed stringent rules and regulations upon them. This is
why it is of most importance that you, as parents consult an
experienced attorney regarding current government benefit
programs.
There
are generally two types of Special Needs Trusts:
Third Party Special Needs
Trust: This type of trust is created by a parent, grandparent
or other persons for the benefit of the disabled person. In this
type of trust, the parent or grandparent is the grantor. Its
assets come from a third party other than the disabled person.
THERE IS NO REPAYMENT PROVISION IN THIS TYPE OF TRUST.
First Party Special Needs
Trust: This type of trust is created by the disabled
individual and has a repayment provision for SSI and Medi-CAL.
In this type of trust, the disabled person is the grantor. This
type of trust is generally used for litigation proceeds.
Much care must be given to the
language of the trust to prevent the loss of the needed services
and assistance.
The
special needs trust assets do not belong to the person with the
disability. The disabled person is the beneficiary of the trust.
The trust is discretionary and the trustee has absolute
discretion to determine when and how much the disabled individual
should receive. The disabled individual cannot be the trustee
of this trust.
Checklist
of important items to know regarding a Third Party Special Needs
Trust:
The SNT is established
(grantor, settlor) by the family members such as parents, grand
parents, and guardians (someone other than the person with the
disability);
The SNT assets are managed
by a trustee (and successor trustees) and NOT the person with
the disability;
The SNT gives the trustee
or successor trustee the absolute discretion to provide whatever
assistance is required. This means that no mandatory
distributions can be made;
The SNT should prohibit
giving the person with the disability more income or resources
than permitted by the government;
The SNT is for
supplementary purposes only; it should add to the things provided
by the government benefit program, and should not replace those
government benefits;
The terms of the SNT define
“supplementary needs” in general terms, as well as in
specific terms related to the unique needs of the disabled
individual;
The terms of the SNT may
provide instructions for the disabled person's final and funeral
arrangement;
The terms of the SNT will
determine who should receive the remainder balance of the trust
after the disabled person dies;
The creator of the SNT
trust determine choices for successor trustees. These can be
family members, friends or professional organizations who have
the best interest of the person with the disability in mind; and
A Third party SNT is a
spendthrift trust and generally protects the trust against
creditors or government agencies trying to obtain funds from the
disabled person.
The
Social Security Administration's (1990) publication Understanding
SSI discusses special needs trusts as follows:
How do resources in this
type of trust count in the SSI program?
Money or property in this
type of trust for an SSI beneficiary...does not count toward the
SSI resource limits of $2,000 for an individual.
How does money from the
trust affect the individual's SSI payments?
Money paid directly to the
providers for items other than the person's food, clothing, and
shelter does not reduce SSI payments. (Items that are not "food,
clothing, or shelter" include medical care, telephone bills,
education, entertainment.)
Money paid directly to the
providers for food, clothing, and shelter does not reduce the
individual's SSI payments -- but only up to a limit. No matter
how much money is spent for these items, no more than $155.66 (in
1991) is subtracted from the individual's SSI check.
Money paid directly to the
individual from the trust reduces the SSI payment. (U.S.
Department of Health and Human Services, 1990, p. 46)
Most
special needs attorneys who are experienced in estate planning for
persons with disabilities will advise the parents to prepare an
Intervivos Special Needs Trust. This means that the trust is to
function during the life of the parent as well as upon death. The
Intervivos Special Needs Trusts function to financially look
after the future needs of the disabled child.
You
as parents should not wait until your son or daughter is 18 years
old to establish the Intervivos Special Needs Trust. It should be
created now.
An
Intervivos Special Needs Trust is different that other types of
trust as follws:
It is a trust that is
separate from the family's main estate or main trust.
The trust is managed by the
trustees, who are usually the parents.
Setting up books and
records, and an account for the special needs trust now sets the
history and creates a record for the trust and its successor
trustees.
If other relatives are to
leave an inheritance to your disabled child, you can request that
the inheritance be made to the special needs trust created by you
for the benefit of the child.
An
intervivos special needs trust creates a much more flexible
structure for the person with the disability.
Revocable
Special Needs Trust v. Irrevocable Special Needs Trust
Third
Party Special Needs Trusts are generally revocable and can be
changed by the settlor. First party Special Needs Trusts are
generally irrevocable and cannot be changed. Although there may
be certain times when the parents want an irrevocable special
needs trust for tax planning purposes.
When
you create an irrevocable special needs trust , it means that any
assets you place in it will remain there for the benefit of the
person with the disability. The settlor cannot later change his
mind about this type of trust. The irrevocable trust is
considered a separate entity other than the creator of the trust .
It has its own tax identification number.
How
to fund Special Needs Trust
The
most common types of assets used to fund this type of trust are as
follows:
Real Property;
Life Insurance;
Annuities;
IRA Accounts; and
Cash and securities.
A Cost worksheet should be used
to determine the amount of income and principal needed for the
disabled person.
Three
things you should talk about with us:
A.
Who will the disabled child live with when you have passed.
B.
How will the disabled child's needs be meet and how to fund the
trust.
C.
Who will manage the disabled child's money.
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Living
Trust Information
Living
Trust Newsletter
Three
simple steps in forming a Revocable Family Trust
Successor
Trustee E-Course
Los
Angeles Probate Information
Probate
Executor E-Course
California
Probate Code 13100-13101: Affidavit of Small Estate
How
to select the right guardian for your child?
Conservatorship
Information
Conservator
E-Course
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Receive
Our Special Needs Safety Kit
Read
the Medi-Cal eligibility guidelines.
Read
the Medi-Cal Recovery FAQ.
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PENSION
& LIIFE INSURANCE LITIGATION
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Has
someone claimed to be a life insurance or pension beneficiary to
which you believe you are entitled? Click
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Has
a Life Insurance company failed to pay life insurance proceeds to
which you were entitled? Click
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POST-DIVORCE PLANNING &
LITIGATION
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Did
you know that your divorce invalidates your old estate plan? Click
here to receive our post-divorce estate planning kit.
Post-Death
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