California Special Needs Trust Attorneys
Caring for Your Most Vulnerable Loved Ones
Special needs trusts are established to provide for an individual who is either mentally or physically challenged. Individuals who do possess one of these disabilities often receive government funding to provide for necessary living costs as well as the insurance they need to maintain their health. A special needs trust, when established correctly, will not interfere with any government funding and will allow the individual to receive the benefits of both the trust and any government support.
If you wish to form a trust for an individual who is mentally or physically challenged, then you should speak with a Fremont estate planning lawyer to learn how to properly form such an agreement.
What is a Trust?
Trusts are a valuable tool used in many facets of life. A trust is a legal entity that you create and then transfer assets and property from your possession to the trust. That means that the trust you create technically owns the assets within it.
There are many reasons someone would create a trust. Certain irrevocable trusts offer a form of asset protection, protecting the property within the trust from creditors. Some trusts help lessen the impact of estate taxes, making it less expensive to transfer wealth upon your death. In the case of a special needs trust, you are able to supply a loved one with financial support without risking the loss of their government-sponsored benefits, such as their Supplemental Security Income (SSI) and Medicare/Medicaid.
When you create a special needs trust, you become the trustor or grantor of the trust. The person who manages the assets within the trust is called the trustee. You have options when it comes to choosing a trustee. You can choose yourself to manage the trust, the caregiver of your loved one, and even the loved one in question if they have the mental capacity to care for themselves and manage their own finances. There are organizations you can hire to act as the trustee of your trust so you can feel confident your loved one is being cared for the way you intend.
The beneficiary of your trust would be your loved one with special needs.
Trusts can be revocable or irrevocable. A revocable trust allows you to maintain control of the assets within it, change the terms of the trust, or even dissolve the trust. An irrevocable trust does not allow you to change the terms of the trust, withdraw the assets within it, or revoke it without significant effort.
A special needs trust is typically irrevocable.
How do Special Needs Trusts Differ From Other Trusts?
As mentioned before, a special needs trust is irrevocable, meaning once you create it and begin transferring assets to it, you can’t easily change the terms of the trust, nor can you revoke the trust.
If you were to create a simple trust for your disabled loved one, start transferring assets to it, and then make it available to them, it is likely they could lose valuable government benefits when it comes time to renew those benefits. A disabled person must earn below $1,620 in order to be eligible for SSDI, which is an easy amount to exceed without the thoughtful planning that goes into creating a special needs trust.
With a special needs trust, the trustee uses caution and follows a strict outline when distributing assets. Their assets are managed in a way that doesn’t count toward their eligibility criteria. Other trusts don’t have this type of rigidity, meaning other types of trust can put your loved one’s benefits at risk.
Some trusts are used in estate planning to reduce the impact of probate court and minimize estate taxes. That is not the purpose of a special needs trust. Certain irrevocable trusts offer a form of asset protection, which allows the property within the trust to be protected from some creditors. A special needs trust offers a form of asset protection in the form of protecting the beneficiary of the trust’s public benefits instead of the assets within the trust.
What Kinds of Special Needs Trusts Are There?
Like most things in finance and estate planning, there are multiple kinds of special needs trusts, and you will need to do your research to pick one that works for you and your family members. If this all seems overwhelming, call The Singh Law Firm at 888-828-2864. During your free consultation, we can get to the root of your needs and help you pick the right trust!
First Party Special Needs Trusts
A first-party special needs trust is created using the beneficiary’s assets. These trusts are most often established when a person with special needs receives a direct inheritance that did not take their situation into consideration during the estate planning process.
This type of trust is also used to manage things like a life insurance payout or a personal injury settlement. When someone who was not disabled suddenly becomes disabled and also receives a legal settlement, they may form a first-party special needs trust so they can receive their settlement and still qualify for public benefits.
One shortcoming of a first-party special needs trust is that when the beneficiary dies, the assets within the trust do not pass directly to their beneficiaries. Instead, all assets in the trust must be used to repay the total lifetime medical assistance benefits, such as Medicaid, received by the initial beneficiary. Any remaining assets pass to the new beneficiaries once this obligation is met.
This may not be ideal and is the main reason people choose to use a third-party special needs trust.
Third Party Special Needs Trusts
This type of trust is also called a “family trust.” It allows the beneficiary’s family members or another individual, such as a guardian, to create the trust.
The grantor of this trust can choose how the funds are distributed. They can prevent the funds from being distributed for certain things that would be covered by the beneficiary’s public benefits, such as food, shelter, and medical care.
A third-party special needs trust can be funded during the grantor’s life or through a life insurance policy. This means that the parents or guardian of the disabled person can purchase a life insurance policy, and upon their death, the policy payout will be transferred to the trust, allowing care to continue for their loved one.
Who Can Create a Special Needs Trust?
A special needs trust is typically established and funded by the disabled person’s parents, but it can be created by a concerned grandparent, family member, or any other person who would like to provide for someone with special needs without affecting their eligibility for public benefits.
People who are over the age of 65 cannot create a first-party special needs trust using their own assets and funds. This type of trust should be created and funded before the beneficiary reaches the age of 65.
A special needs trust cannot be created for someone who does not have a recognized disability. This usually means they need to have a medically diagnosed disability and are likely already receiving supplemental security income and other government benefits.
If you are unsure if you can create a special needs trust or if your loved one is eligible to receive funds from one, please call 888-828-2864 to schedule a free consultation with The Singh Law Firm. During your consultation, we will help you determine whether you can create a special needs trust fund and whether the intended recipient is eligible for this type of trust.
Pooled Trusts
Pooled trusts are managed by nonprofit organizations. This means the grantor can create the trust and have a nonprofit organization that is knowledgeable about the distribution and care of people with special needs operate as the trustee. This relieves pressure on the grantor, allowing them to fund a trust and ensure their disabled family member is properly being cared for.
If the beneficiary dies while assets remain in the trust, the remaining assets are either repaid to the state for services provided or become the property of the nonprofit organization.
How Do You Set Up a Special Needs Trust?
The very first step you should take when setting up a special needs trust is speaking with a knowledgeable special needs trust attorney. Special needs trusts are complex legal documents with many regulations to ensure they are used properly and for the benefit of people with disabilities. Find out how The Singh Law Firm can help you determine the right path you can take to ensure care for your disabled family member.
Once you have a special needs trust attorney on your team, you can start the process of creating a trust.
Your first step is to determine the type of trust that will best support your family member. How much money will they need to support the quality of life you want for them? How long do you want the trust to provide financial care for them, and how often do you want funds distributed? Will you act as the trustee, and if not, who do you want to administer the trust? What should happen to the funds remaining in the trust when the beneficiary dies?
Your special needs trust attorney will help you answer all these questions and, with that information, help you create the trust.
Picking a Trustee
The trust administrator is called the “trustee.” They determine how funds are distributed and ensure the trust complies with the relevant laws and regulations that govern special needs trusts.
Family members, guardians, and nonprofit organizations can be assigned as the trustee. You can also assign yourself as the trustee if you would like to be in charge of the administration of the trust once it is created.
The trustee should be someone you trust to ensure the assets are being used properly and the trust is always legitimate according to laws and regulations. It can be a tough job, make sure the trustee is up to the task.
Establish the Trust
Trusts are legal entities, and you must outline how they are managed and how the funds will be used. You will need to state the purpose of the trust and how the funds can and cannot be used to support the beneficiary.
You must name the trustee and, if possible, list a successor trustee, someone who can take over the task should the primary trustee no longer be able to administer the trust. You will also need to outline the trustee’s responsibilities.
Specify how the trust is being funded. Funding the trust with certain government benefits can cause complications. You will also need to specify how income earned from the trust will be managed.
Specify successor beneficiaries who will inherit funds from the trust should the primary beneficiary pass away.
Finally, outline the circumstances under which the trust can be terminated.
Start Funding the Trust
Special needs trusts can be funded in a variety of ways from a variety of sources and can include a combination of funding from multiple sources. The trust can be funded by:
- Financial gifts from friends and family members
- Life insurance proceeds
- Inheritance
Plan for the Future
If you are the primary person adding funds to the trust, you will also need to plan how the trust will remain funded once you pass away. Purchasing a supplemental life insurance policy that will continue to fund the trust after you pass away is one way to ensure they are cared for after your death.
You can work with an experienced estate planning attorney to come up with a plan that will ensure your child does not lose their Social Security disability insurance or medical benefits when they inherit your estate after your death. The wealth you worked for should go to your child, whether they are a disabled person or not. With proper estate planning tactics, you can ensure your wealth stays in the family and benefits your child the way you intend without risking their eligibility for public benefits.
If you are the beneficiary’s parents, you should communicate your wishes and expectations regarding your child’s future well-being. This way, if other family members or another person becomes the primary guardian of your child, they will have the outline to care for your child the way you intended.
What Expenses Can a Special Needs Trust Cover?
A special needs trust pays for the comforts that parents would normally pay for from their own pockets. A special needs trust can usually pay for things like education, recreational activities, counseling, and medical attention that aren’t covered by their current insurance.
The funds can be used to purchase a car or cover transportation costs for the beneficiary, pay for their vacations, home furnishings and decor, entertainment, and other costs associated with bringing enjoyment to their lives.
The funds within the trust can also help the recipient with mental and physical therapy, education expenses, starting a business, electronics and appliances, and legal expenses.
If the beneficiary is a business owner, the funds can help them with the operations of their business.
What Expenses Aren’t Covered Under a Special Needs Trust?
There are some limitations to a special needs trust and what the funds can be used for. The following are examples of expenses not covered by this kind of trust:
- Rent and mortgage payments
- Cash advances
- Gift cards
- Property taxes and fees, such as condominium association fees
- Utilities like natural gas and electricity
These costs should be paid by the beneficiary’s supplemental security income. The trustee should never give cash or pay for shelter without consulting a special needs trust attorney to make sure there is no risk of interfering with their government benefits.
Can The Singh Law Firm Help You?
When an individual receives a trust, the benefits often exceed the limit for any government funding possibilities. The special needs trust was formed for this exact purpose as it can protect the challenged individual’s ability to receive both the trust and the government funding.
The Singh Law Firm can help you or a loved one create a special needs trust for the person of your choice. A special needs trust does not initially grant property rights to the beneficiary. The trust maintains control of any gifts or assets and passes them on as necessary or as instructed. We will make sure that your trust does not interfere with any government funding the beneficiary may be receiving and dedicate our resources to ensuring you peace of mind.
Special needs trusts are often used to buy necessary items for the beneficiary, whether that is transportation, medical supplies, a computer, or rehabilitation materials. Our law firm can help you determine the best way to ensure that those you love are cared for well in the event of your death. We have dedicated our legal careers to helping individuals with their estate plans, and we know exactly how to create a special needs trust for you. These trusts require careful attention to detail, as any minor error can create serious legal problems for your heirs. We will make sure that your trust is legally sound so your beneficiary is protected should the unexpected occur.