According to the Centers for Disease Control and Prevention’s Disability and Health Data System, 20.9% of all the adults living in California have a disability. That means the loved ones of 20.9% of all Californians may have to be especially thoughtful when crafting their estate plans.
Unfortunately, leaving as little as $2,001 to a disabled beneficiary can prevent them from receiving government benefits like SSI (Supplemental Social Security Income) and Medi-Cal benefits which are often essential to their well-being. The solution to this problem is not to cut your disabled loved ones out of your will or leave money to another family member hoping they will take care of your disabled family member. Instead, the way to ensure that your loved ones with special needs are taken care of after you are gone is to create a special needs trust within your estate plan.
A special needs trust is a government-sanctioned device that allows disabled persons to inherit certain assets without becoming ineligible for government assistance. The trust is able to shield assets from the government’s grasp by putting them out of the control of the person they are designed to benefit. The trust is controlled by a trustee who is able to spend money in the trust on the disabled beneficiary’s behalf.
For example, say you have an adult child with a disability who receives government benefits to help them pay for food, shelter, and medical care. If you die without a special needs trust, and your child inherits more than $2,000 from you, they will likely have to give up all of their government benefits and live only on the money or other assets you left them. The government might even be able to reach into your child’s inheritance and take out money to pay itself back for benefits it has provided in the past. This is extremely disruptive to your child’s life at a time when they are also going to be grieving.
If you create a special needs trust benefiting your child, any money you leave your child will go into the trust instead of directly to your child. A trustee you have appointed will then spend the money in the trust to benefit your child in a way that does not prevent them from continuing (or starting) to receive government benefits.
The money in a special needs trust can’t be spent on just anything. It must be spent in a way that enhances the quality of life for the beneficiary. In order to maximize government benefits and maximize the amount of money in the trust, the money in the trust must be spent on items that government benefits don’t cover, but that qualify as acceptable expenditures. This can include things like special food, trips to visit family, and educational expenses. If the expenditure can be justified as something that enhances the life of the beneficiary, it is probably going to be allowed.
Because of these benefits, special needs trusts are a critical component of your estate planning if you have a disabled beneficiary you wish to provide for after your passing.
