A Trust is a written set of instructions for managing your assets – bank accounts, financial investments, real estate and so on. In this newsletter we will be discussing Special Needs Trusts.   A Special Needs Trust is designed to work for the benefit of a person with a disability, usually a son or daughter, brother or sister, or parent. It provides a set of instructions for managing assets set aside to help the disabled person without jeopardizing government benefits he or she might be receiving.  These trusts are relatively inexpensive to create, and are usually once-in-a-lifetime investments. For the next few weeks we will be addressing common questions.

Why use a Special Needs Trust?

A Special Needs Trust is a specialized legal document designed to benefit an individual who has a disability.  It is often a stand-alone document, but it can also be part of a well-constructed Revocable Living Trust.  Special Needs Trusts have been in use for many years, and were given an “official” legal status by the United States Congress in 1993.

Unlike other types of Trusts, Congress has created a federal law permitting the use of Special Needs Trusts. They are valid throughout the country, and nobody can question the validity as long as it meets the requirements written into the law.

A Special Needs Trust allows a person with a physical or mental disability, or an individual with a chronic or acquired illness, to have an unlimited amount of assets held for his or her benefit without disqualifying the person from certain governmental benefits.  Such benefits may include Supplemental Security Income (SSI), MediCal (Medicaid), vocational rehabilitation, subsidized housing, and other benefits based upon need.  A Special Needs Trust provides for extra care over and above that which the government provides.

What can it be used for?

A Special Needs Trust can help ensure that your disabled family member has every opportunity for a fulfilling and happy life.

According to the law, a Special Needs Trust can be used for “supplemental and extra care over and above what the government provides.” A properly drafted Special Needs Trust will work on a “sliding scale”; that is, in the impossible event that the government provides for 100% of the disabled beneficiary’s needs the Trust will provide 0%.  If there are no governmental benefits available, the Trust can provide 100%.  Most people fall somewhere along the scale, and the Trust supplements governmental coverage.

Although there are MediCal rules that say that the Trust cannot be used for housing or food, these rules have to be interpreted carefully. For example, there is no restriction on purchasing an accessible home or making accessibility adaptations to an existing home and having the Trust own or pay for them.  You should have a detailed discussion with an attorney about these rules and the ways they can be interpreted.

Aside from not preparing any estate planning documents, here are some more common mistakes our office has seen with estate planning documents.

Not leaving instructions on where to find trust and will documents.

Put your originals in a safe place.  We do not recommend a safe deposit box.  Once you are gone your trustee needs authority to get into that safe deposit box and the authority is in the documents locked in the box.  That doesn’t really work.

Make sure you tell your successor trustee where those documents are, or at minimum, give them your attorney’s contact info.  So if something happens, they can call the office.

Sometimes a client calls and says “We have unsigned copies of these documents that they created, but we don’t know if they signed them or where the signed copies would be.” If you are very clear and very specific, people know where to find your important documents. It makes it easier on your loved ones.

For those more tech savvy people, scan and keep digital copies of your documents and tell your successor trustee where those files are and how to access them. You can even give them a thumb drive with the documents.

Not working with an estate planning attorney.

Estate planning is complicated and there are a lot of traps for the unwary, even unwary attorneys. Find someone who is a specialist, who knows how to navigate issues, and who you feel comfortable with.  Do not have your CPA create your estate planning documents, or your financial advisor.  Don’t let your divorce attorney prepare your estate planning documents.  They may be great at dissolution but estate planning may not be their area of expertise.  Find an attorney specializing in estate planning.    

You don’t think through whether the gift you leave someone will actually help them at the time of your passing.

Another mistake that people make is to not carefully considering the consequences of the bequests that they make. Yes, leaving people money is an empowering thing. But sometimes those same bequests can cause a lot of problems for the person receiving the gift.  When leaving money to children, some consideration should be given to the child’s maturity and place in life.  An 18-year-old may be a legal adult, but is probably not in a good place in life to receive an inheritance, even a relatively modest one. Receiving gifts outright might disqualify a college-aged person from financial aid.  

For those beneficiaries in their midlife, some consideration should be given to the risk of divorce, creditors or vices such as substance abuse or gambling addiction.  You should also consider if a beneficiary is receiving benefits like disability.  Receiving an inheritance could disrupt benefits for a special needs relative or loved one.  In each of those cases, the inheritance you may have intended to benefit a friend or family member could wind up in the hands of someone else and/or not help your loved one at all — and maybe even hurt them.

 Gifting an automobile and not leaving instructions where the title is (pink slip).

If you plan to give a family member, or friend a vehicle, make sure you put the pink slip in a place where it can be found.  If a pink slip is lost replacing it could take years.  Depending on the situation, a new pink slip may not be so easy to request through the DMV.  Registration for the vehicle may need to be paid, insurance may need to be updated and if there is a lien on the vehicle, that will need to be paid off.  Once those things happened a new pink slip can be requested through the DMV.  The DMV or the vehicle manufacturer may want copies of death certs, trusts docs, and driver licenses.  Vehicle manufacturers have Probate departments to handle situations like this.  If necessary, give that department a call and ask what documentation they need in order to request a duplicate title from them.