There is no cookie-cutter, one-size-fits-all estate plan, and this is why it is necessary to receive personalized attention from a licensed estate planning attorney before you make any decisions. Every situation is unique, and your own financial position and your intentions will be a large part of the equation. On the other side of the coin, you should also take the life situation of each person on your inheritance list into account.
With the above in mind, if you have someone with a disability on that list, you should definitely speak with our firm about special needs planning. If you take action on your own without the appropriate legal guidance, you could make mistakes that wind up yielding negative consequences in the future. This is because of the fact that many people with disabilities rely on need-based government benefits.
One of these is Medi-Cal, which is a source of health insurance for people that have very limited financial resources. Supplemental Security Income is another program that provides a modest stream of income for people that cannot earn money on their own because of disabilities. Since these are need-based programs, a sudden improvement in financial status could cause a forfeiture of eligibility.
Fortunately, there is an estate planning solution that can be utilized to address the situation if you want to provide for someone with special needs without doing any harm in the process. You could establish a supplemental needs trust for the benefit of a loved one that you would like to make more comfortable. These legal devices are sometimes called special needs trusts.
The trustee that you name in the trust declaration would be empowered to use assets that you conveyed into the trust to satisfy the supplemental needs of the beneficiary. These expenditures would not impact benefit eligibility, but it is important to note that the trustee would not be able to provide direct monetary distributions to the beneficiary. Educational expenses, medical and dental costs that are not covered by Medi-Cal, vacations, electronic devices, educational costs, and many other goods and services would be supplemental needs that could be satisfied by trustee.
If you establish a special needs trust for the benefit of someone else with your funds, it would be a third-party special needs trust. Under program rules, Medi-Cal is required to seek reimbursement from the estate of a deceased individual that was enrolled in the program. However, the Medi-Cal program cannot seek reimbursement from assets that remain in a third-party special needs trust after the death of the beneficiary.
Sometimes, a person with a disability will come into some money through a personal injury settlement or judgment. In other instances, a well-meaning individual could leave an inheritance to someone that is enrolled in these government programs. Under these circumstances, it is possible for a parent, a grandparent, a legal guardian, or a court to establish a first party or self-settled special needs trust with the funds.
The same situation would exist with regard to the ability of the trustee to use the assets in the trust to satisfy the supplemental needs of the beneficiary. However, there is one major difference. After the death of the beneficiary, assets that remain in the trust could be absorbed by Medi-Cal.