How Can Parents of Children with Disabilities Use Estate Planning to Provide Long-Term Care?

How Can Estate Planning Provide Long-Term Care for My Disabled Child in California?

If you have a disabled child or loved one, you may be wondering how to provide for their care after you are gone. If they are currently using government assistance programs, you will have to make arrangements that do not affect their ability to receive this care.

One of the ways that you can provide long-term care for a disabled child is through a Special Needs Trust (SNT), as covered in California Probate Code Sections 3600-3613.

Understanding What a Special Needs Trust Is

A Special Needs Trust, or an “SNT,” is a trust created to hold assets for a person with disabilities. An SNT makes it possible to provide additional care without affecting the beneficiary’s eligibility for government assistance, which uses income or net worth as criteria for enrollment. This is possible because the SNT is directed by a “trustee,” not the beneficiary. Government assistance programs such as Medicaid and Supplemental Security Income (SSI) will legally overlook such a trust as an asset because the disabled person does not legally own it. An SNT may provide additional help to care for the beneficiary beyond what government assistance can provide. It may be used for the following purposes:

• Education
• Recreation
• Counseling
• Medical attention beyond government coverage

Items covered under government assistance, like food and shelter, should not be part of an SNFs specified purpose to ensure the beneficiary stays eligible for social security support.

How Special Needs Trusts Work

Understanding a few key terms can make it easier to understand how an SNT functions.

Grantor: The individual who funds the trust with assets.
Trustee: The person assigned to manage the trust according to its formative documents. This could be a family member, a friend, a hired professional, or a non-profit organization.
Beneficiary: The disabled child or loved one for whom the trust was created. All payments out of the SNT should expressly benefit the beneficiary.

How is a Special Needs Trust Funded?

If you are writing your will, it is a suitable time to consider funding an SNT for your disabled loved one. There is more than one way to fund this type of trust. Others in the family may want to participate in funding the trust. The assets placed in an SNT can come from a variety of sources, including:

• Contributions from family and friends
• Life insurance policy proceeds
• Lawsuit settlements from personal injury claims
• Donated stocks and bonds
• Real estate

What Are the Different Types of Special Needs Trusts?

There are three main types of SNTs, each with unique benefits. Speaking with one of our experienced estate planning attorneys at Cava & Faulkner can help you choose the trust configuration that best suits your needs.

First-Party Special Needs Trusts

A first-party SNT is used when an individual with disabilities has their own assets, such as a settlement from a personal injury lawsuit or an expected inheritance. By directing these funds to a first-party SNT, the beneficiary can still benefit from them without endangering their eligibility for Social Security Disability Insurance (SSDI), Supplemental Security Income (SSI), or Medicaid.

One of the caveats of a first-party SNT is that once the beneficiary has passed, any remaining funds are used to reimburse the government assistance programs for the care provided during their life.

Third-Party Special Needs Trusts

A third-party SNT is most appropriate for parents or guardians seeking to leave money or assets to a disabled loved one in their will. This type of trust allows someone other than the beneficiary to provide the funding. It can be used while the grantor is still living or after their passing to help manage supplemental costs for the beneficiary.

An additional benefit of a third-party trust is that the remaining funds in the account after the beneficiary has passed away are not subject to government control. Government assistance programs will not be entitled to be reimbursed by the trust, so the remaining money can be passed to another relative or loved one. There are also no limitations on the trust size or beneficiary age.

Pooled Special Needs Trusts

A non-profit organization manages a pooled trust. This type of trust could be a good option for those with a moderate endowment to give or who do not have a suitable person to manage their trust. The non-profit organization oversees the combined resources of many beneficiaries in one “pooled” account, with each beneficiary having a separate sub-account. This type of organization can have the added benefit of maximizing the dividends for the beneficiary and often comes with a greater support network provided by the non-profit.

Both first-party and third-party-funded SNTs can use a pooled trust approach. Even when pooled, first-party SNTs are required to pay back government assistance per federal law 42 U.S.C. § 1396p(d)(4)(C).

How Can I Set Up an SNT?

The best first step to set up an SNT is to consult with one of the estate planning attorneys at Cava & Faulkner. This way, a professional can help walk you through the remaining steps.

Choose a Trust Type

Review the available SNTs that can be used in your unique situation. Consider if the funding will be a first-party or third-party source of funding and if it is better for the trust to be cared for by a trustee or placed under the control of a non-profit organization, as is done with a pooled trust.

Decide on a Trustee

Deciding on a trustee is an important step. Make sure to choose a reliable and trustworthy person who will keep the best interests of the beneficiary as a primary goal. Professional trustees are available if you cannot find a friend or family member who can or is willing to fill this role. This could have the added benefit of engaging a person who is more familiar with the relevant law and can be impartial while executing the trust’s primary purpose.

Provide a Funding Source

Funding is the key component to the value of a trust. Whether you will be only placing cash or a mix of stocks, bonds, and real estate, make sure you take the time to list all the assets you want included and have a clear picture of how these will be transferred.

Create the Trust Documents

With the help of an estate planning attorney, create the necessary legal documents to bring the trust into being. The document should include the purpose of the trust and instructions for the beneficiary’s care and support that will guide the trustee in their execution of the trust’s intention. California law does not require that your trust documents be notarized, but many people opt to have them legally witnessed in this way as a preventative measure against fraud.

Regularly Review and Update

California law changes with every calendar year. Life can also change, making it necessary to redirect resources, switch trustees, or modify a trust’s configuration. Be sure your trust stays sound by having it reviewed by a legal professional every three to five years.

Leave a Legacy of Care with Cava & Faulkner

At Cava & Faulkner, we are dedicated to helping you navigate the legal complexities of providing for your loved ones. As experienced special needs trust lawyers, we understand the unique concerns of parents of children with disabilities. We are here to guide you through creating an estate plan that puts your child’s future first with the care and financial security they need. Call us today at 916-831-7565 for an absolutely FREE consultation. Let us help you help the ones you love with carefully crafted estate planning.