When you are having a trust or will prepared and you have a disabled child, you will most likely want to make special provisions for the portion of your inheritance going to that child. Your child may not be capable of managing their own money, and if your child receives an inheritance, it could affect their needs-based public benefits. One common way to resolve both of those issues is to include a Special Needs Trust as part of your estate plan. The Special Needs Trust provides for management of your child’s money, and can protect the money set aside for the child from interfering with their benefits if they are on Medi-Cal/ Medicaid, SSI, or other needs-based benefits.
A Special Needs Trust designates a Trustee who will manage your child’s money after you are gone. Since the need for the Special Needs Trust might outlive you by many years, you will generally want to include Successor Trustees in case your chosen Trustee is not available. The Trustee and Successor Trustees can be family members or trusted friends, or could be a private professional fiduciary.
The Special Needs Trust would state that If the beneficiary is receiving Medi-Cal/Medicaid, SSI, or other needs-based benefits, the Trustee will need to follow special rules, such as not giving the beneficiary cash, but only buying things for them that they may need or want. The Special Needs Trust would also specify who will receive any remaining funds after the death of your child. An optional provision in a Special Needs Trust is to include a Trust Protector or Protectors, who have the power to review the trust finances, and to remove a Trustee or appoint a new Trustee if needed.
Instead of creating your own Special Needs Trust, your funds for your disabled loved one can be put into a pooled trust after your death. Pooled Trusts are managed by non-profit agencies, and they manage the funds for disabled persons. The fund managers are experienced in all the laws and rules about Special Needs Trusts, they can manage large or small amounts of money, and because the money is pooled they can have more diverse investments than your individual trust. However, there are some downsides, such as that they may not be as flexible as a trust run by an individual Trustee, some of them are run more smoothly than others, and it’s difficult to move the money out of a pooled trust once it has been put in the trust. There are also set up and maintenance fees that need to be taken into account. The charges vary between the various pooled trusts, so if you want to explore that option it is best to compare the plans. You can find a list of pooled trusts online, such as from SpecialNeedsAnswers.com.
A new option to help your child financially without interfering with their benefits is to establish or contribute to an ABLE account, such as CAL ABLE, or equivalent programs in other states. You can contribute up to $15,000 per year to an ABLE account in your child’s name without it affecting your child’s need-based benefits. The total amount in the account can be $100,000 without interfering with SSI. If your child is not receiving SSI, the maximum in the account can be $529,000.00 currently.
You can contact an estate planning attorney for a fuller discussion of these options for your estate plan.