Attorney at Law
If a disabled adult receives an inheritance, the government will require the individual to spend the money before it will pay for residential care or other services. The cost of full-time care of a severely disabled adult can quickly exhaust what might seem like a large inheritance. Virtually any increase in assets may disqualify a disabled person from receiving Medicaid or Medi-Cal.
Once the inheritance is exhausted, the individual may be in worse shape than before. He'll be dependent on government programs for clothing, food and shelter, and there won't be anything left to pay for extras like visits to relatives or a motorized wheelchair.
A special needs trust is the method by which you can leave an inheritance for the benefit of a disabled person and not have that person lose eligibility for Medi-Cal or Medicaid benefits.
Special needs trusts are designed to supplement, not replace, the kind of basic support provided by government programs like Medicaid and Supplemental Security Income (SSI). Special needs trusts pay for comforts and luxuries -- "special needs" -- that could not be paid for by public assistance funds.
To qualify, a special needs trust must be very specific in stating that its purpose is to supplement government benefits and to provide only benefits above and beyond the benefits the beneficiary (disabled person) receives from any government agencies. It is critical that the trust not duplicate any government-provided services and that the beneficiary not have any resemblance of ownership of the trust assets. Otherwise, the government could attempt to seize the trust assets for repayment of services already provided or determine that the beneficiary does not qualify for future benefits.
To accomplish this, you will need to give the trustee complete control over the distribution of the assets and any income they generate; the beneficiary cannot be able to demand any principal or interest from the trust.
Give careful consideration to your choice for trustee. Of course, you (and your spouse) will continue to provide for this person while you are alive and able. But someone will need to assume this responsibility after your death or incapacity.
The most obvious choice is another family member who also cares deeply about this person. But be aware of a possible conflict of interest, especially if this trustee will inherit the trust assets after your disabled dependent has died; your trustee may care more about preserving trust assets than providing for your beneficiary.
Consider using (or adding) a corporate trustee; that's a bank or trust company that specializes in managing trusts. They can be impartial, and they will be around for as long as your beneficiary lives.
Finally, be sure to work closely with an attorney who has considerable experience with these trusts.
Richard Nevins has been an attorney for 18 years. His law firm provides legal advice in estate planning and small business law. For more information, please visit his website at www.RichardNevins.com
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