One very valuable type of estate planning instrument is a trust. Trusts can give you a method for holding and managing your estate assets for the benefit of your loved ones. With a trust, you have the chance to provide your own instructions regarding how your assets should be distributed and under what conditions. A trust is a particularly valuable tool for those with loved ones who have special needs. A California special needs trust is a specific type of trust used for this exact purpose. If you are considering whether you need to establish a California special needs trust, here is what you need to know in order to make an informed decision.
Understanding a California special needs trust
The purpose of a special needs trust is to provide instructions for the future care of someone who has a disability or other special needs. Future needs could include medical care, general personal care, financial support, and safeguarding of government benefits. The two major goals of a special needs trust are protecting your loved ones eligibility for current or future government benefits and making sure that if something happens to the primary caregiver, the beneficiary will still receive care and support.
Two types of California special needs trusts
There are two types of special needs trusts and each type of trust has a different purpose. A General Support Special Needs Trust is most often used as the main source of financial resources for someone with special needs. Alternatively, the Supplemental Care Special Needs Trust is used more as a secondary source of funds, to be used when government benefits have been exhausted. A Supplemental Care Special Needs Trust is perhaps the most common type of special needs trust.
What does “special needs” care refer to precisely?
The term “special needs” is an inclusive term which basically refers to medical treatment, health-care services, and other services the purpose of which are to increase the beneficiary’s quality of life. A special needs trust can also be used to support daily living activities, respite care for the primary caregiver, living arrangements, required renovations to the beneficiary’s home, or many other things.
Creating a special needs trust
Special needs trusts can be created in one of two ways. The trust can be established during the caregiver’s lifetime or it can be established through a provision in the caregiver’s will. Special needs trusts are irrevocable, so modifications cannot be made after the trust is executed.
Who should be the trustee of your special needs trust?
In many cases, the person who executes the trust document (referred to as the grantor) will name himself or herself as the trustee in order to maintain control over the trust property. This is because the grantor is the typically the caregiver. The grantor/caregiver must also select someone to serve as successor trustee in the event that the caregiver is no longer able to serve at any point for any reason. This need can arise for several different reasons, such as the death or incapacity of the trustee or if the trustee has to resign for any reason.
Methods for funding a special needs trust
Usually, a trust that is used for special needs is funded by a parent or relative of that person with special needs. In situations where the trust is funded by the beneficiary’s own assets, that type of trust is referred to as a “self-settled” special needs trust. Under the law, Medi-Cal must be reimbursed for benefits paid when the beneficiary passes away if there was a self-settled trust.
A special needs trust can also be funded as a pooled trust, which means the funds of several different beneficiaries are pooled together, managed and invested on behalf of all beneficiaries by a non-profit organization. There are certain advantages to using this type of funding method, so discuss your options with your California trust attorney.
A special needs trust can be funded with cash
A special needs trust can be funded with nearly any type of asset, including real estate, securities, and personal property. But, cash is typically the best option when it comes to paying for items not provided by SSI or Medi-Cal. One way to handle this is to include provisions in the trust that give the trustee the authority to sell certain property in order to liquidate that property for cash.
Download our FREE estate planning checklist! If you have questions regarding a special needs trust, or any other estate planning needs, contact the Northern California Center for Estate Planning and Elder Law for a consultation, either online or by calling us at (916) 437-3500.