A special needs trust is a tool that can hold assets for the benefit of a disabled person, without those assets counting as the property of the disabled person. This is important, as Medi-Cal and SSI rules allow a beneficiary to possess no more than $2,000.00 of countable assets. Assets in a properly drafted special needs trust can provide supplemental benefits for an individual without counting against this $2,000.00 limit. A disabled individual can accordingly be a named beneficiary of the special needs trust and also continue to receive benefits under Medi-Cal and SSI. Without a properly drafted special needs trust, the receipt of an inheritance, personal injury settlement, or gift would cause an SSI or Medi-Cal recipient to lose their eligibility for benefits.

If you have a family member with a disability, you want to assure they have the best possible care and quality of life, both now and later when you are no longer able to be the advocate you are today.

If you are a person with a disability, you want to be able to qualify for the benefits and programs you need to achieve as much independence as possible. At San Diego Specials Needs Law Center, it is our mission to make sure you have all the support and tools in place to achieve these goals. The skills required for a “Special Needs Law” attorney are almost identical with the field of Elder Law: Familiarity with the rules of Public Benefits programs such as SSI and Medi-Cal; thoughtful planning for the care of someone who needs assistance, and; providing the needed financial and support tools for families and caregivers. Since there is no certified specialization in California for “Special Needs Law,” the majority of qualified Special Needs Planning Attorneys will identify themselves also as “Elder Law Attorneys,” with many of them also qualifying as Certified Specialists in the fields of either Elder Law, Estate Planning, or both. While at first blush, this relationship between “elder” and “special needs” law is not obvious, the informed special needs consumer should understand this close association between “elder” and “special needs” law to obtain the best qualified legal assistance. At San Diego Specials Needs Law Center, we have extensive experience in Special Needs Law and our community, working in the following practice areas:

• Special Needs Trusts and Estate Planning for Special Needs Families
• Conservatorships and Limited Conservatorships for the Developmentally Disabled
• Public Benefits Planning
• Care Advocacy
• Preservation of Benefits Eligibility in Litigation Settlement or Inheritance Scenarios Life Care Planning

We also enjoy our relationships with various advocacy groups and the disability community. It is through the interaction with our clients and these groups that we continue to learn and grow, and better serve our client’s needs.

Our Senior attorney, Phil Lindsley, is both a Certified Elder Law Attorney and a Certified Legal Specialist in Estate Planning, Trusts and Probate (State Bar of California, Board of Legal Specialization).

Whether you’re planning ahead with a special needs trust, or faced with an immediate problem requiring a conservatorship or a threat to existing public benefits, we understand the problem and know the solutions

To get started, please call our office at (619) 235-4357. During office hours, you will get a live person, knowledgeable about these issues, and ready to help you set an appointment to see an experienced attorney. If you prefer, you can Contact us by email.

We also enjoy our relationships with various advocacy groups and the disability community. It is through the interaction with our clients and these groups that we continue to learn and grow, and better serve our client’s needs.

Our Senior attorney, Phil Lindsley, is both a Certified Elder Law Attorney and a Certified Legal Specialist in Estate Planning, Trusts and Probate (State Bar of California, Board of Legal Specialization).

Depending on its terms, a special needs trust can pay for anything. The problem is not what the trust can do, but how the SSI and Medi-Cal programs will treat the receipt of income by the beneficiary. It is almost never a good idea to give cash, or anything that can be converted to cash, directly to the beneficiary. For every dollar given above $20, this type of distribution will generate an equivalent dollar reduction in benefits. Depending on the amount of cash given to the beneficiary, this could result in a complete loss of benefits. Purchases of food and shelter, known as In-kind Support, or “ISM” are also problematic. They can result in deductions in monthly benefits, or even complete loss of SSI or Medi-Cal coverage. The method of computing the penalty for ISM, however, can create circumstances where payment of rent, for example, can be quite advantageous. Whether payment for food, rent or other ISM is advisable or not will depend on the facts of each particular case, and should not be attempted without advice from a person or professional familiar with the ISM rules. The safest use of special needs trust funds is to purchase things or experiences for the beneficiary that are not redeemable for cash, and are not food or shelter (ISM). This is always permissible and, if properly done, does not result in any deductions. Such distributions are the heart of most special needs trust administrations. Examples are a computer; television or other household electronics; furniture and furnishings; books, CDs, DVDs; supplemental medical care or therapy; travel and entertainment; recreational activities; memberships… in short, the special items and experiences beyond the basics that bring enjoyment to our lives.

Who acts as the trustee in a special needs trust?

The person creating the trust gets to name the trustee and any successor trustees as well. Often parents and family members establishing a special needs trust want to be trustee until they are no longer able. This works well if they learn the SSI and Medi-Cal income and asset rules, or seek advice from their Special Needs Attorneys or other professional familiar with the rules of the benefit programs. Many, however, prefer using professional trustees with the required knowledge. Such trustees can safely administer a special needs trust, and prevent an inadvertent loss of benefits. Families opting for professionals can stay in control with a trust drafted to provide for family members acting as “Trust Advisors” or advisory “Trust Committees,” with the authority to remove and replace trustees. This is often the best of both worlds: the familiarity with the disabled individual only family can provide teamed with professionals experienced in the SSI and Medi-Cal regulations. Whether to use a family member or a professional is an important choice, and we work with our clients to find the solution best for them.

What are the differences between “first party” special needs trusts and “third party” special needs trusts?

The “first party” special needs trust is a trust established with the assets of the individual (or their spouse) who is on public benefits. A “third party” special needs trust is established and funded with the property of anyone other than the person (or spouse) on public benefits. An example of a third party trust would be a parent or other family member establishing a trust for a disabled beneficiary, and funding it with their property. The distinction is important, as the rules and restrictions are much greater for the first party trusts than they are for third party family trusts. However, if the excess assets threatening benefit eligibility are unavoidably assets owned by the disabled person or their spouse, a first party special needs trust can allow an individual on SSI or Medi-Cal who has received a windfall (inheritance, gift, personal injury settlement, etc.) to continue receiving their benefits, while also enjoying a life significantly improved by the resources of the special needs trust.

First Party Special Needs Trusts can be either a customized “D-4A” self-settled trust or a “D-4 C” pooled trust. The Federal regulations concerning the “self-settled” trusts are very detailed and technical in who can establish them, how they are established, and the required language within the trust. Circumstances may require that they be established by a Judge of the Superior Court at a formal hearing, and that they be subject to continued court supervision. Most notably, they must have a “payback provision” requiring the repayment to the State for any Medi-Cal benefits received. This repayment would apply to any assets left upon the death of the beneficiary or termination of the trust. The D4C “Pooled” trusts are qualifying first party special needs master trusts established and maintained by non-profit organizations. Rather than writing a customized trust as with the D4As, you simple “join” the master trust. While there is a loss of customization available with the D4A self settled trusts, these may be simpler and cost effective options. As a first party trust, however, they will also have a payback clause. These payback requirements for the D4A and D4C trusts notably do not apply to third party trusts. In a third party trust, the party establishing it can leave any remainder to whoever they wish, without any payback.

Third party special needs trusts are established with the assets of anyone other than the beneficiary or their spouse…usually by parents or other family members of individuals with developmental or other disabilities, or diagnosis of mental illness. They are much easier to set up and do not have the extensive requirements and limitations of a first party special needs trust. The most important difference is that there is no need for a “payback” clause. A third party special needs trust is a powerful planning tool for the family of an individual with a disability who is, or who may be in the future, receiving Medi-Cal or SSI. Unfortunately, we frequently see clients, usually on SSI, who must establish a first party special needs trust because they are receiving an inheritance. This invariably could have been avoided if the person who left the inheritance had established a third party special needs trust for the share of their estate intended for the individual with a disability.

Are there alternatives to Special Needs Trusts?

Yes. Whether or not they make sense depends on the facts of each case. Good special needs planning always begins, however, with analyzing the nature of the public benefit program, and whether assets are even counted in eligibility determinations. For example, Social Security Disability Income (SSDI) does not count assets for eligibility determinations, while Supplemental Security Income (SSI) does. If the receipt of assets is a problem under the beneficiary’s program, often the purchase of “exempt” assets not counted under the program rules is a cost-effective alternative. We try and help our clients avoid special needs trusts if possible, and make the best choices on types and terms if not.

If someone is on public benefits, and getting an inheritance, will they need a “First Party Special Needs Trust?”

Maybe. Again, we always begin with assuring that the benefit is “means tested;” a program that counts assets for eligibility determination. Not all do. We can help you determine whether or not there even is a problem posed by the inheritance. If the beneficiary is on means-tested benefits such as SSI or traditional Medi-Cal, a “First Party” special needs trust or pooled special needs trust may be needed. However, sometimes in inheritance scenarios we can avoid a first party self-settled trust with its onerous “payback” clause by asking the court to reform the deceased family member’s estate plan to include a third party special needs trust with benefit-preserving language. Each case depends on its own facts, and we cannot always accomplish this. Still, we’d be happy to look at your situation and advise you if this might be a possibility in your case. Better still….we urge those with family members who have disabilities to plan ahead instead and avoid such dilemmas. Educate family members, such as grandparents who may be leaving bequests, to seek the counsel of an elder law attorney regarding third party special needs trust language. We enjoy coordinating all concerned family members’ estate planning in special needs situations.

We have three children; two sons and a daughter. Our daughter is developmentally disabled and receiving SSI and Medi-Cal. Do we need a special needs trust?

Probably. Without a special needs trust, assets left to an individual receiving SSI or Medi-Cal will likely cause them to forfeit their program eligibility. In some cases, if an inheritance or gift is large enough to more than compensate for a lifetime of benefits, the loss of the Medi-Cal or SSI may not matter. In most cases however, the receipt of “countable resources” over allowable asset limits will simply cause a few years of ineligibility until the gifted or inherited funds are exhausted. We know this is not what you would want to happen to your estate. Some parents would try and deal with this situation by, for example, disinheriting their daughter with a disability and leaving everything to their sons with an “understanding” that they would use the funds to supplement their sister’s care. This has many inherent risks, some not obvious, you need not take with your children’s future. You should consider instead incorporating a “third party” special needs trust into your family’s estate plan. We would be pleased to discuss this with you.

Are special needs trusts available to the elderly also?

“Third Party” special needs trust are available for those over 65. The “self-settled” first party special needs trust discussed above are not available to those over age 65 unless established and funded before they were 65. The first-party “Pooled Trust” options are, however, available, with some caveats concerning funding.

We have a family trust, but are not sure if we have the correct third party special needs trust language in it. What should we do?

If your estate plan was drafted by an experienced elder law attorney, you should be fine. Elder law attorneys are familiar with both estate planning as well as SSI and Medi-Cal regulations. We stress the use of experienced counsel, as we frequently review existing “special needs trusts” that either confused the type of benefit program the beneficiary was on, or that are drafted with inappropriate and disqualifying language. Nearly any attorney can insert a “special needs” provision from a forms book into a family living trust. One must understand, however, whether a special needs trust is even called for, and if it is, the type of special needs trust needed, as well as the required terms and appropriate language for the specific programs the beneficiary is on. At San Diego Specials Needs Law Center, we would be pleased to consult with you concerning your family’s estate plan, and assess whether or not a special needs trust is appropriate. We also review existing estate plans and special needs trust to assure they are properly structured and most advantageous for the beneficiary and their family.

Leaving assets, whether through gift, will, or a trust, to beneficiary receiving means-tested public benefits will in most cases simply cause them to forfeit their eligibility and lose their benefits

In some cases, if the bequest or gift is of sufficient size to more than compensate for a lifetime of benefits, this may be acceptable. In most cases, however, such a bequest will simply cause a few years of ineligibility until the gifted funds are exhausted. Since there are excellent special needs planning alternatives, such a result is inevitably the result of poor or no planning, and a sad waste of family resources. Thoughtful estate planning can preserve public benefits and supplement care to assure your family member will be provided for the way you want, even after your death. A properly drafted special needs trust can provide for a child or adult with a disability, and assure that there is funding for care beyond what is provided by public benefit programs like SSI, Medi-Cal, IHSS and the Regional Center. Assets in a properly drafted special needs trust will not cause someone to be disqualified from any of these programs.

Are you really able to save?

Most people in the disability community have heard about the “Achieving Better Life Experiences” (ABLE) Act over the last few years. Finally, after nearly six years of revisions, testimony and lobbying, ABLE won final congressional approval and was signed by President Obama on December 21, 2014. While adoption by states is voluntary, California will almost certainly adopt the ABLE Act. Now more than ever is the time for special needs families and advocates to become keenly aware of what it will…and won’t…do for them.

What is an Able Account?

The ABLE account was meant to be a version of the “529” (College Savings Plan), but with the tax-free withdrawals to be used for “qualified disability expenses.” Advocates had hoped that these accounts would be a viable alternative to special needs trusts: exempt from being counted against the eligibility limits for SSI, Medi-Cal/Medicaid, or other means-tested programs, while having the added bonus of tax-free growth. Unfortunately, the ABLE act that came out of Congress was neither the ABLE Act that went in…nor the Act that most advocates expected.

Able Account Limitations

The Unfortunate but “Not so Bad” Limitations

• Limited to those with disabilities beginning prior to age 26, with required proof of qualifying disability.
• One ABLE account per disabled individual, with total annual contribution limit of $14,000 from all sources (other than qualified roll-overs).
• Lifetime contribution cap at State 529 limits (currently $371,000 in CA).
• Withdrawals must be for qualified disability expenses, with significant tax penalties for other expenditures.

The More Unfortunate Limitations

• If account balance grows to $100,000, there will be a loss of SSI benefits. This is significant loss, as the average qualified 25-year old might otherwise collect as much as $600,000 in SSI benefits over their life. To avoid this, an ABLE account must not be allowed to grow to more than $100,000.
• Failure to adequately monitor annual and lifetime contribution limits can lead to an account being disqualified, and the assets being counted by public benefits programs. This could lead to a surprise disqualification from needed benefits.

The Most Unfortunate Limitation

• ABLE accounts will have a Medi-Cal/Medicaid payback clause. This is by far the most unfortunate of the ABLE provisions, and the one that has caught most advocacy groups and families by surprise. Even for funds contributed by parents and family members, any balance left on the termination of the account or death of the beneficiary must be turned over to the State Medi-Cal (Medicaid) agency to pay them back for services provided. This is in stark contrast to “Third Party Special Needs Trusts,” which do not have these limitations. Accordingly, most who wish to provide for a family member with a disability will still want a third party special needs trust, as such trusts:
  1. Have no proof of disability needed or disability requirements;
  2. Have no annual or life time contribution limits;
  3. Can be used for anything, not just “disability” expenses (Trip to Disneyland!);
  4. Cannot be counted by SSI or Medi-Cal, no matter how much is in them;
  5. Have no payback clause! Assets, if any remaining, will go to the family members you select, not the state.

Even the so-called “tax advantage” of an ABLE account may be largely illusory. Most third party special needs trusts will be “Qualified Disability Trusts” which, combined with the personal exemptions of the beneficiary, would have approximately $14,300 in annual tax exemptions. An ABLE account with $100,000 (SSI limit) would accordingly have to earn more than 14.3% interest in a year to be tax-advantaged over the 3rd party special needs trust.

Not a replacement for special needs trusts

For these reasons, ABLE accounts will integrate with, rather than replace, the third party special needs trust; the current cornerstone of most family special needs planning by parents and grandparents. We think, however, ABLE accounts will be excellent tools to help many with disabilities achieve more independence. Those able to work part-time, and who are constantly worrying about their $2,000 asset limitation for SSI and Medi-Cal, can use an ABLE account as a savings plan to park up to $14,000 per year of savings. These “savings” accounts could build up to $100,000 without effecting SSI, allowing the disabled individual the opportunity for thoughtful planning for their own benefit.

Learn more about ABLE accounts

San Diego Special Needs Law Center is currently offering a series of talks to educate consumers and professionals on what ABLE can do, some of the limitations and how it fits in the thoughtful family special needs plan. Please check our schedule of presentations on ABLE, and other topics call 619 235-4357 if you would like to discuss having Mr. Lindsley present to your group or organization.

We also provide ongoing services for trustees administering special needs trusts

It is important that a special needs trust trustee does not distribute funds in a fashion causing loss of benefits or ineligibility for the family member receiving the public assistance. We can help trustees avoid any such traps, and meet any reporting requirements.

A limited conservatorship is a special type of conservatorship for adults with developmental disabilities

What is meant by “Limited?” The State of California has a stated policy to encourage as much independence of people with developmental disabilities as much as possible. Rather than the broad grant of authority in a standard conservatorship (actually referred to as a “probate conservatorship”), a limited conservator’s authority is divided into seven separate categories. Each of these must be specifically addressed, and the need for each individually established. If all seven were granted, the authority of the limited conservator would be comparable to a general probate conservator. If, however, a developmentally disabled individual who is fairly high functioning was found to be able to make their own educational and social contact decisions, for example, they would retain the right to do so. The conservator’s power in that case would be “limited” to the remaining five powers. A Person with developmental disability who is significantly disabled can be eligible for a general conservatorship. Notwithstanding, in most cases families successfully request and are granted all 7 powers, resulting in a robust set powers for the parents or other persons petitioning to be the Limited Conservator.

Turning age 18 and becoming an adult does not automatically mean that every individual with a developmental disability will need a conservatorship

Sometimes, if your child or family member with disability has sufficient independence and life-skills, a limited conservatorship may not be necessary. They might, however, still welcome and benefit from your assistance. Assuming they have sufficient understanding, and the capacity to cooperate with an attorney, they can draft legal documents to assure you remain involved in their lives. Financial and health care powers of attorney and living trusts are but a few of the tools that can give family members the legal authority to actand provide needed assistance, without having to argue with banks, schools and medical providers about your right to be involved. Whether or not such documents would be adequate depends on the particular situation, the cooperativeness of the individual with the disability, and again, their legal capacity to create such documents. We would be pleased to help you decide if any such alternatives make sense in your situation, and discuss methods of accomplishing this.

How can these costly mistakes be avoided?

The common denominator in all of these issues is this question: “How can I get the right legal advice regarding special needs matters?” The fact is, any attorney in California can call themselves a “special need’s attorney,” or “elder law attorney” regardless of their experience. Forms are available to any attorney or paralegal for “special needs trusts.” The skill is not in the tool, it’s in the person using it. You need to be able to trust the skill level of your attorney. At a minimum, they should have an excellent understanding of Public Benefits Law to adequately advise you on the type of Special Needs Trust and clauses to use in your individual situation. In California, there are two types of certified specializations that are relevant in this area: 1) Certified Elder Law Attorneys (CELAs), who have Public Benefits Law as the core of their specialization, and 2) Certified Legal Specialists, Estate Planning Trusts and Probate (CLS-EP). While anyone can hold themselves out as a “special need’s attorney” or as doing “special needs trusts,” only those who have undergone rigorous evaluation and testing can call themselves either of these. Regardless of whether your “special need’s attorney” has either of these specializations, you should ask them direct questions about the length of their experience in this area, and what percentage of their practice is devoted to special needs planning.

MISTAKE 1: Disinheriting the child

Many families who have children with special needs rely on SSI, Medi-Cal (Medicaid) or other government benefits to provide food, clothing and shelter. You want your child to continue to have access to these important benefits after your death. You may have been advised to disinherit your special needs child, the very child who most needs your help, in order to protect that child’s benefits. But these benefits rarely provide more than basic subsistence. Disinheriting your child is no solution, and totally unnecessary. How will you help your child after you are incapacitated or gone? If your child requires governmental assistance to meet their basic needs, you should consider establishing a Special Needs Trust.

MISTAKE 2: No Long-Term Plan

Can you rely on your other children to support your special needs child? Perhaps, if they are financially secure and it is for a brief time. But this is not a long term- solution that will protect your special needs child if something happens to you.

Similarly, leaving an “enhanced” inheritance share with the intent of having one of your children provide for their sibling is not a wise choice.

We often tell our clients that this is a plan that “works if it works.” Even the most well- intentioned and trustworthy of siblings have their own lives and financial concerns. There are many potential problems they may face in their lives, and that may risk their ability to support your special needs child. What if the child you leave the “enhanced” share has creditor problems or a divorce settlement? What if they become incapacitated or die while your special needs child is still living? Can you count on their spouse or heirs to support your special needs child? There are many scenarios where the “enhanced” share you left for a sibling to use for your special needs child would be significantly diminished or lost altogether.

Brothers and sisters of a child with special needs often feel a great responsibility for their sibling, and have felt so all of their lives. When you provide clear instructions and , a helpful structure by way of a Special Needs Trust, you lessen the burden on all of your children, and you support a loving and involved relationship among them. A Special Needs Trust gives your other children the tools they need to provide for their special needs sibling.

MISTAKE 3: Not Having a Custom Plan

A Trust that is not designed with your child’s special needs in mind will probably render your child ineligible for the essential benefits they rely on. The Special Needs Trust is designed to promote your child’s comfort, happiness, and quality of life without sacrificing or jeopardizing benefit eligibility. Special needs can include medical and dental expenses, annual independent check-ups, necessary or desirable equipment (such as specially equipped vans), training and education, insurance, transportation and essential dietary needs. If the trust is sufficiently funded, your child can also receive electronic equipment & appliances, computers, vacations, movies, payments for a companion, clothing and other self-esteem enhancing and quality of life expenses: the sort of things you now provide.

MISTAKE 4: Procrastinating

Because none of us know when we will die or if we will become incapacitated, it is important to plan for your child with special needs early, just as you would for minor children and other dependents. Unlike most other beneficiaries, your child with special needs may never be able to compensate for your failure to plan. A minor beneficiary without special needs will have the ability to obtain more resources when he or she enters the workforce. Your child with special needs may not have that same opportunity.

MISTAKE 5: A “Generic” Special Needs Trust

Some Special Needs Trusts are unnecessarily inflexible and generic and not customized to the needs to the person with the disability. While the trust may protect government benefits, the boilerplate provisions may fail to address the unique needs of the beneficiary, and fail to address the continuation of the type of care, training and opportunities that the parent provided when they were alive. Generic trusts Special Needs Trusts are also too often made “irrevocable” upon signing. While this is appropriate in some cases, the choice is often not adequately discussed. If offered the option, most parents prefer to retain their right to improve and fine tune the trust as years pass, and flexibility to withdraw assets if needed. This may not be possible with an irrevocable trust. Over time, a revocable trust can be modified to address the beneficiary’s evolving needs, and any changes in the law. Your attorney should be able to knowingly discuss with you whether a revocable or irrevocable trust is best for you.

MISTAKE 6: Choosing The Wrong Trustee

During your life, you will be able to manage the Special Needs Trust. When you and your spouse are no longer able to serve as trustee, your Special Needs Trust will include provisions for who will serve as the successor trustee. You may prefer a professional successor trustee. Make sure that whoever you choose is financially astute, well-organized, and, most importantly, ethical and caring. Be sure to discuss this with them ahead of time to assure that they will be comfortable accepting this responsibility. Your attorney should be able to advice you in your options, and explain your ability to keep proper control and supervision after your death through “Family Advisory Committees” and “Trust Protectors”.

MISTAKE 7: Funding The Trust

A key benefit of creating a Special Needs Trust now is that your extended family and friends can make gifts to the trust or remember the trust as they plan their own estates. You can also consider whether making the trust the beneficiary of a life insurance policy makes sense now, while you are healthy and insurance rates are low.

In addition to the gifts and inheritances from other people who love your child, you can leave your assets to the Special Needs Trust through your own will or family trust. You can also name the trust as a beneficiary of life insurance or retirement benefits. It is imperative, however, that you get professional advice if you have IRA or other retirement benefits you wish to leave to your special needs child.

You may have heard of the term “special needs law”, in the context of disability and special needs, and wondered what if anything, that has to do with special needs.

Actually, the skills required for a “Special Needs Law” attorney are identical with the field known as Elder Law: familiarity with the rules of public benefits programs such as SSI and Medi-Cal; knowing and advocating for the legal rights of those with disabilities; thoughtful estate planning for the care of someone who needs assistance, or is unable to care for themselves; understanding the challenges to family and caregivers; and being able to integrate all of this with thoughtful planning. Since there is no certified or recognized specialization in California for “Special Needs Law,” most special needs attorneys will identify themselves as “elder law attorneys.” The most experienced of those will qualify with the State Bar as Certified Elder Law Attorneys (CELAs) or Certified Legal Specialists in Estate Planning,Trusts and Probate, or both. While at first blush, this relationship between “elder” and “special needs” law is not obvious, the informed special needs consumer should understand this close association if they wish to obtain the best qualified legal assistance.