Trusts are very valuable estate planning tools that provide a way to hold and manage assets for the benefit of your loved ones. You have the opportunity to include your own instructions as to how the property should be distributed and under what circumstances. A trust is an especially valuable tool if you have a loved one with special needs. California special needs trusts are a particular type of trust used just for this purpose. If you are considering whether you need these types of trusts, your estate planning attorney can help you make that decision.
What is a special needs trust?
The goal of a special needs trust is to provide a plan or set of instructions for the future care of someone with special needs or a disability. Future care needs can include medical care, general personal care, financial support, and safeguarding of government benefits. The two major components of a special needs trust are protecting eligibility for current or future government benefits and ensuring that if something happens to the primary caregiver, the beneficiary will still be provide for.
How is a Special Needs Trust different?
There are various types of trusts which satisfy different goals. A Special Needs Trust is one type of trust which is created for the benefit of someone who is disabled or has “special needs.” A Special Needs Trust should be irrevocable, meaning that it cannot be modified or terminated. This also means that the assets are not subject to creditors or legal judgments against those assets. A Special Needs Trust is important in planning for the possibility of a caregiver becoming incapable of continuing the care they provide to someone with special needs. Someone needs to be able to take over, if the unexpected happens.
Types of Trusts for Special Needs
Special Needs Trusts are basically categorized into two types: general support and supplemental care. The General Support Special Needs Trust is intended to serve as the primary source of benefits for someone with special needs. However, this type of trust can cause problems for the beneficiary if they need to apply for a need-based benefits program, like Medicaid or SSI. Ask your special needs trust attorney for advice on how to handle this situation.
The second type, a Supplemental Care Special Needs Trust, is the most common type used to provide for the future care of someone with special needs. However, this particular type of trust can only be used as a secondary source of funds once government benefits have been exhausted. Therefore, this type of trust will not typically interfere with eligibility for government, needs-based programs.
Different ways to create a Special Needs Trust
There are various ways to create or fund Special Needs Trusts. For instance, a Family-Type Special Needs Trust is created when parents or family members of the person with special needs fund the trust through their will or through a life insurance policy. Another way families can fund the special needs trust is by using a “living trust” which becomes effective immediately. Keep in mind that the money held in a Family-Type Special Needs Trust cannot be used to purchase food clothing or housing because doing so may jeopardize government benefits.
Court-Ordered types of trusts
You can also have a court-ordered Special Needs Trust when the person with special needs is the recipient of an inheritance or a court settlement. A Court-Ordered Special Needs Trust is different in that the beneficiary is actually the owner of the funds. A Pooled Special Needs Trust is one that is managed by a nonprofit organization which actually holds the assets of more than one trust beneficiary. The assets of all of the beneficiaries are pooled together and invested as a common fund. However, the accounts for each beneficiary remain separate for distribution purposes.
Special Needs Trusts can be complex legal instruments, requiring specific language in order to properly convey the purpose of the trust. You should always consult an experienced and qualified special needs trust attorney to assist in creating a Special Needs Trusts.
Download our FREE estate planning checklist! If you have questions regarding special needs trusts, 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.
- Understanding the Importance of the Simultaneous Death Act - September 25, 2023
- IRS Confirms Grantor Trust Status Alone Does Not Cause a Step-Up in Basis - September 23, 2023
- National Make-a-Will Month - September 21, 2023
