For families with special needs children or adults, additional planning is typically needed to make sure that the estate plan provides adequately for the disabled person while not interfering with public benefits such as SSI and Medi-Cal.
Special Needs Trusts
A disabled person is usually not able to manage his or her assets, for a number of reasons. Instead, his or her inheritance should be directed to a specialized type of trust, called a “special needs trust.” This type of trust can hold assets to be distributed for anything the disabled person might need, to supplement any needs-based public benefits the person is receiving (or may receive in the future) and to improve the person’s quality of life.
A third party is named as the “trustee” to manage the trust. The trustee can be a family member or friend, a “private professional fiduciary,” a bank, or other nonprofit. It is essential to name the right trustee as well as a back-up trustee, for this role is key to the proper administration of the trust.
Upon the death of the disabled person, any remaining assets are to be distributed according to the terms of the trust – to other family members, friends, or charities.
In December 2014, President Obama signed into law the Achieving a Better Life Experience Act (“ABLE Act”). This law allows states to establish savings accounts similar to 529 plans for disabled individuals which do not interfere with the disabled person’s needs-based public benefits.
This type of account is not yet available in California. We predict it should be available within the next year or two.