An Overview of Trusts and Wills
posted on 12/11/95
Introduction
Some families have disabled children with mild impairments,
or have such large estates that they can safely leave a
large inheritance to a child with a disability, not caring
whether it results in termination of certain public
benefits, such as SSI (Supplemental Security Income) or
Medi-Cal. Most families, however, are not as well off.
Either the child has disabilities which pose a more
substantial handicap, or the inheritance is not large enough
to support the child for a significant period of time. Such
families typically face three options. One is an informal
agreement (or moral understanding) that, say, one adult
offspring will use part of an inheritance to meet the
special needs of a sibling with a disability. A second is a
discretionary, special needs trust. A third is to leave the
disabled family member only assets which are not countable
for SSI or Medi-Cal purposes _ e.g., a home occupied by the
offspring with a disability, and certain other assets.
Wills
A will is a legal document expressing binding intentions
about what the person wants done with his or her property
after death. States have laws for the distribution of
property in the event (1) there is no will or (2) an heir is
not mentioned or otherwise provided for in the will. In
such cases, the law provides certain shares to closest
surviving relatives. The ownership of some assets, such as
real property held in joint tenancy and life insurance
passing to a named beneficiary, passes outside of the
probate process.
If there is no will, the child with a disability will
inherit a share of the estate, as provided for in state law.
This is likely to result in termination of certain needs
based public benefits, such as SSI and Medi-Cal insurance
coverage, until all but $2,000 in countable assets remain.
If there is an otherwise valid will, but the child with a
disability is not mentioned, the child may inherit the share
that he or she would have inherited had there been no will.
Government agencies are likely to argue that the child was
inadvertently overlooked.
Trusts
A trust is a legal entity like a corporation. The creator
of the trust establishes its purposes. Title to assets is
placed in the hands of a trust, with directions to the
trustee(s) as to how income from the trust, and assets in
the trust, are to be used. If a parent does not want to
disrupt receipt of public benefits, the usual kind of trust
set up for dependent children without disabilities (a
support trust) is not a good idea. A support trust is set
up with directions to the trustee to buy food, shelter,
clothing, medical care, educational services, and other
basics. Instead, a discretionary special needs trust is
indicated. The reason is that public entitlement benefits
(e.g., SSI, Medi-Cal) would be terminated if the trust were
deemed a countable resource. If the purpose is clear
(special needs only), and the instrument carefully drafted,
Social Security and Medi-Cal rules and regulations will not
consider a special needs trust as a countable resource to
the SSI recipient.
Discretionary, special needs trusts have two critical
elements. The assets and income are to be used only at the
complete discretion of the trustee (not at the beneficiary's
discretion), and then only to supplement that to which the
beneficiary is otherwise entitled. In other words, the
trust language forbids the trustee to use trust income or
assets for the basics of food, shelter, clothing, and any
care (e.g., health services), supervision, education, or
training to which the person, by reason of citizenship,
disability, or low-income status, would otherwise be
entitled.
The creator of the trust typically specifies the kinds of
extras that the trustee may purchase: for example, (1) a
trip to see a relative; (2) a set of dentures, when neither
Medi-Cal nor any other insurance is obligated to pay; (3) a
stipend for a friend or personal advocate who will keep up
on the consumer's life and well-being; and so forth. Even
in these cases, to avoid problems the trustee should pay the
dentist (and others) directly, rather than hand money over
to the beneficiary to make payment, since the latter might
be considered countable income to the beneficiary.
Trusts can be (1) living or testamentary, and (2) revocable
or irrevocable. A living trust is one established by its
creator during the creator's lifetime. Typically, the
creators (e.g., parents) serve as trustee(s), with successor
trustees named for when the creator dies or becomes
disabled. Living trusts are typically revocable, unless
there is a tax or other benefit from being irrevocable. A
testamentary trust is but a shell, until assets pass into
the hands of the trust upon the creator's death, according
to a will or other instrument. Since life insurance
benefits do not have to go through probate, using such
proceeds is one common way of funding a testamentary trust.
Overview written by John Shea for Allen, Shea & Associates
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