One important aspect of estate planning is considering the needs of your heirs and beneficiaries before you split your assets equally among them in a will. Some heirs cannot manage money, and some are unable to do so because of cognitive disabilities.

Leaving assets to a special needs child or dependent can backfire if it is done through your will or standard trust. The state of California can claim assets or cut off Supplemental Security Income (SSI) and Medi-Cal, California’s Medicaid program, which have eligibility thresholds. To avoid negative consequences for your loved one, consult with our skilled attorneys about special needs estate planning in Tustin.

Consider a Guardianship

One of the earliest documents a parent can enact for a minor child is a guardianship arrangement, which appoints a trusted friend or family member to care for a special needs child upon the parent’s death or incapacitation. The courts are involved in guardianship actions. A guardian sees to their charge’s everyday needs, including housing, medical care, nutrition, and education. Parents can also set up appropriate trusts and accounts for a special needs child.

The ABLE Account

For parents with children who are disabled at birth or develop special needs before age 26, the Achieving a Better Life Experience (ABLE) account, or CalABLE in California, can be a boon. The child, parents, grandparents, friends, and other family members can contribute up to $15,000 annually to the account, which is tax-free. In 2022, Congress raised the eligibility age for ABLE recipients from 26 to 46 by passing the ABLE Age Adjustment Act, although participants older than 26 cannot open an ABLE account until January 1, 2026.

The Third-Party Special Needs Trust

A standard trust that disburses assets at a grantor’s death will interfere with a special needs person’s MediCal and SSI benefits, but a third-party special needs trust will not. Parents and other family members and friends can create and fund a third-party special needs trust during their lifetime or provide for it in a will.

The proceeds of a life insurance policy can also name the special needs trust as the beneficiary. Parents who rely on retirement accounts when they stop working can assign any residual funds after they pass away to the special needs trust.

Once the disabled recipient dies, the remainder of the third-party trust is left to another beneficiary of the creator’s choice.

The First-Party Special Needs Trust

A first-party special needs trust is funded by the special needs person from employment earnings, an inheritance directed to this trust, or a settlement or damages award from a civil lawsuit. That could be a personal injury lawsuit in which a defendant is liable for the injuries that caused the plaintiff’s developmental difficulties. To qualify for a first-party special needs trust, you must be under 65 years of age. If you are a minor, then a parent, grandparent, or court-appointed guardian must set it up. Funding must be solely from the beneficiary’s assets.

Once the special-needs person dies, the law allows Medicaid to confiscate what is left in a first-party trust to offset the benefits it has provided over the years.

The Pooled Trust

Non-profit organizations manage pooled community trusts as trustees for a group of individual special needs citizens whose families may not have the resources to set up a single trust large enough to make a true difference in the person’s life. Individuals can access their pooled benefits through their accounts within the pool and their government benefits will not be affected. Talk to an attorney at Amity Law Group about the ways we can help a special needs person through estate planning in Tustin.

Discuss the Importance of Special Needs Estate Planning in Tustin

Every person deserves to be secure and cared for into old age. Special needs children and adults may need a boost from careful estate planning because, although many of them work and thrive, many others do not.

Government benefits such as Social Security Disability, SSI, and MediCal provide essential basic benefits that may not be enough to comfortably live on. A nest egg of special trusts and accounts can make a big difference for your child or dependent. Call now to learn more about the importance of special needs estate planning in Tustin.

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Amity Law Group, LLP

Amity Law Group, LLP