FAQ's SPECIAL NEEDS TRUSTS:
What is a Special Needs Trust?
Why does my child with Autism need a Special Needs Trust?
Why should I set up a Special Needs Trust now?
LIVING TRUSTS FAQ's PAGE:
What is a Revocable Living Trust?
Why would I need to set up a Revocable Living Trust?
What if I don't own a home or have $100,000 in assets? Would I still need a Revocable Living Trust?
If I have a Revocable Living Trust will I still need a will?
My child has Autism. Does that affect the drafting of my Revocable Living Trust?
What is an A-B Revocable Living Trust?
What is a Special Needs Trust?
A Special Needs Trust is special type of trust that can hold assets for and distribute payments for your child with Autism, while at the same time preventing him or her from being disqualified from receiving Supplemental Security Income ('SSI') or Medi-Cal. Although your child is named as the beneficiary of the trust, the assets are not counted as his or her 'available resources' because the assets are not within his or her 'control'. That is why a person with Autism can have millions of dollars in a Special Needs Trust, and still qualify for means-tested SSI and Medi-Cal.
Why does my child with Autism need a Special Needs Trust?
Almost all children with Autism need a Special Needs Trust because they will need to be eligible for SSI and Medi-Cal either as a child or an adult. SSI is a federal needs-based program that is based on income. Once a special needs person qualifies for SSI, they automatically qualify for Medi-Cal (the California version of Medicaid). Qualification for Medi-Cal is critical, because income from SSI will usually not meet an individual's minimum needs, and is currently at 2/3 poverty level. However, Medi-Cal could pay for hundreds of thousands of dollars in a special needs child's medical expenses before and after the parents' deaths that could otherwise drain significant assets from the child's family.
Why should I set up a Special Needs Trust now?
We all need to complete our estate planning because death and taxes are the only two things certain in life. We may die while white-water rafting down the American River, but we're more likely to die on the way to the grocery store. If parents establish a Stand-Alone Special Needs Trust during their lifetimes, the trust will not need to have pay-back provisions in it, so long as the Special Needs person doesn't already own the assets. In a stand-alone Special Needs Trust, the parents can designate who will take all the remaining assets left in the Special Needs Trust after the Special Needs Person dies. Conversely, remaining assets in some special needs trusts are subject to pay-back provisions. A pay-back provision is required if the trust was established pursuant to a court order, or if the Special Needs person or his or her spouse or conservator is establishing the trust with assets the special needs person already owns. Under pay-back provisions, the remaining assets will be applied to pay back the government for all Medi-Cal benefits supplied to the Special Needs person during his or her lifetime. A Special Needs Trust may be established by the court for your child with Autism if you do not set one up during your lifetime, but it would have to have pay-back provisions. By setting up a stand-alone Special Needs Trust now, you can avoid not only potential problems with gifts and inheritances to your child with Autism, you can also ensure that he or she will not have to have a future trust that has pay-back provisions.
After I die, can't I and other family members just leave my child with Autism an inheritance, or give him a monetary gift without a Special Needs Trust in place?
A gift or inheritance that leaves your child with Autism with non-exempt assets in excess of $2,000 is a gift to the federal government, as it will disqualify your child from benefits until the assets are "spent down" to $2,000 or less. If your child receives or inherits more than $2,000 in countable assets, he or she will be disqualified from receiving SSI and Medi-Cal. He or she will may also not qualify for private health insurance, and could be left paying for his or her medical expenses. With the high cost of medical treatment, in many cases, disqualification from Medi-Cal causes the child's inheritance to be exhausted within two to three years. After that, for the rest of his or her life, your child will be completely dependent on family members and the 2/3 poverty level SSI governmental assistance. This situation will in turn, drain the assets of the other children in the family and other family members. It is very important for parents to understand that potential disqualification from Medi-Cal is the single most important reason why it is critical parents set up a Special Needs Trust for their child with Autism now.
Some attorneys tell me they can prepare a testamentary special needs trust for me. What is the difference between a testamentary special needs trust and a stand-alone Special Needs Trust?
Some attorneys add a few provisions inside a regular revocable living trust and advise their clients that it is a sufficient special needs trust. The provisions are actually a testamentary trust, and consist of about ten paragraphs, which direct the trustee to set up a trust for your child with Autism after both of you (parents) die. The testamentary special needs trust has no name immediately because it does not exist yet. After both parents die, it becomes irrevocable, and without going to court, it cannot even be amended to be made current with changes in the law. As part of the parents' estate, it is subject to the parents' creditors and lawsuit claims. It does not name an advocate, or usually successor trustees, and does not nominate a conservator or guardian for the special needs person. In addition, grandparents or other persons who die before the parents cannot leave inheritances to it. Only the parents, or persons who die after the parents can fund a testamentary trust. If the grandparents die before the parents and leave an inheritance to a special needs child without a stand-alone special needs trust, the inheritance, if over $2,000, is a gift to the federal government, as the child will be disqualified from benefits until the inheritance is spent down. You can avoid all of these problems, and protect your child in many other ways by establishing a Special Needs Trust for your child with Autism.
What is a Revocable Living Trust?
A Revocable Living Trust is a legal document that holds title to your assets. Your assets are then titled in the name of the trust rather than in your name, even though you still remain the owner of all the assets in the trust. The trust sets forth all the terms regarding your property and what will happen to your assets upon your incapacity and death. Because your trust is revocable, you can move assets in and out of the trust, and revoke, re-state and amend your trust at any time during your lifetime. After your death, your trust becomes irrevocable. In the case of a married couple, one-half of the trust becomes irrevocable at the death of the first spouse to die, and all of it is irrevocable at the death of the surviving spouse.
Why would I need to set up a Revocable Living Trust?
The most important reason to set up a Revocable Living Trust is to avoid probate. If you have over $100,000 in assets at the time of your death, your estate must go through probate court. In California, if you own a home alone, you should set up a Revocable Living Trust to avoid probate. Probate takes one to three years, and is very time-consuming and expensive. An estate valued at $700,000 costs about $35,000 to probate. That is all your money that you can leave to your child with Autism instead by having a Revocable Living Trust in place. The trust hold title to your assets while you remain the legal owner of the assets. It has a neutral effect on your taxes as the Internal Revenue Service considers all the assets owned by you. For married couples, an A-B Revocable Living Trust can reduce or eliminate estate taxes. A Revocable Living Trust can allow for faster distribution to your beneficiaries. Conversely, if your estate has to be probated, your child with Autism will not inherit (or his Special Needs Trust will not receive its distribution) until after your estate has completed probate- one to three years later. If you have other non-special needs children, a Revocable Living Trust can hold bequests to them in a sprinkling trust until the child reaches a certain age or ages, while paying for education and support for the child in the meantime. A Revocable Living Trust can also provide for you upon your incapacity. The alternate trustees can manage the trust and your assets upon your incapacity, and use them to pay for your care according to the terms you set forth in the trust.
What if I don't own a home or have $100,000 in assets? Would I still need a Revocable Living Trust?
You can always set up a Revocable Living Trust so that you can take title to any home your purchase or other assets you acquire in the future in the name of the trust. But if you are confident that you will never have more than $100,000 in assets, you can just have a will. However, if you have a child with Autism, you likely still need a Special Needs Trust, and special provisions in your will drafted by an attorney knowledgeable in this area of the law.
If I have a Revocable Living Trust will I still need a will?
If you set up a Revocable Living Trust, you will also need a "pour-over" will. A pour-over will takes all the assets not already in the name of your Revocable Living Trust and 'pours' them into your trust. However, even a pour-over will will not avoid probate, if your assets covered by the will are worth more than $100,000. As a result, you should always take all assets with title in the name of your Revocable Living Trust. The one exception is any vehicle licensed by the Department of Motor Vehicles ('DMV.') You do not need to put vehicles in the name of your Revocable Living Trust, as any items that fall within the jurisdiction of the DMV fall outside probate court. Accordingly, after your death, your executor can take your death certificate and your certification of trust, and change title to your vehicle to the name of your Revocable Living Trust.
My child has Autism. Does that affect the drafting of my Revocable Living Trust?
Yes. It is very important for a parent of a child with Autism to have their Revocable Living Trust prepared or amended at the same time they set up the Special Needs Trust by an attorney knowledgeable in this area of the law. The Revocable Living Trust must have special provisions in it in order to ensure that the Special Needs Trust receives the distribution rather than your child with Autism. Other special provisions will also ensure that the Social Security Administration can never claim that your child with Autism was in control of the assets, thus disqualifying him or her from governmental benefits. A Special Needs Trust works best as part of an integrated estate plan, including a Revocable Living Trust and wills for both parents. If all your estate planning documents are completed or amended at the same time, you can name your Special Needs Trust as the beneficiary of whatever inheritance you want your child with Autism to receive, and at the same time, ensure that you child will not inadvertently receive an inheritance that will disqualify him or her from Supplemental Security Income ('SSI') or Medi-Cal. It is also very important that grandparents amend their trust and wills to ensure that your child with Autism is not detrimentally affected by an inheritance from them, but that is it distributed to their Special Needs Trust instead.
What is an A-B Revocable Living Trust?
An A-B Revocable Living Trust is one version of a Revocable Living Trust that married couples can use to minimize or eliminate federal estate taxes. At the death of the first spouse, the trust assets are divided in half. The surviving spouse sets up two trusts: the bypass trust and the survivor's trust. Each trust qualifies for the federal estate tax exemption, and accordingly, can save the married couple substantial federal estate taxes. Most married couples can benefit from having their Revocable Living Trust drafted as an A-B trust.
Back to the top
