Estate Planning for Individuals with Special Needs
By Barbara Bergstein
Valley Lawyer. October 2020
Estate planning attorneys are called upon to deal with more than just preparing wills and trusts. They often become counselors to their clients, advising on interfamily relationships, handling the gradual decline in mental function of a client, dealing with the death of that client, and often serving in the role of mediator for family conflicts.
One area that can be especially challenging for estate and trust attorneys is representing a family that has a special needs child, regardless of whether that child is a minor or an adult. Parents of a special needs child may be struggling with numerous, challenging issues including the ongoing health needs of that child, finding care providers who can offer much needed respite relief, advocating for their child, and finding supplemental programs to enhance that child’s quality of life. In addition to those challenges, parents are especially concerned about the future of their child, often wondering what will happen to her when they are no longer here.
Government Benefits. Many individuals with special needs receive government assistance. For those individuals who have never worked or been employed due to a disabling condition, Supplemental Security Income (SSI) and Medi-Cal are their lifeline. To qualify for SSI and Medi-Cal, the individual must have a qualifying disability and have no more than $2,000 in resources such as savings or checking accounts. Usually when a child turns age 18 she can apply for these means-tested government benefits. The SSI program provides a monthly stipend to cover the costs of food and shelter. California adds a supplemental amount to the federal benefit rate.
In addition, a disabled adult may qualify for Social Security Disability Insurance (SSDI) if she is the adult child of a worker who is receiving retirement benefits. She can also qualify through a deceased parent’s earnings record. After a 24 month qualifying period, that child is also eligible for Medicare. The applicant must prove that she was disabled before the age of 22. These benefit programs are called entitlement programs because they are based on the earnings record of a worker. Because these benefits are not means tested, one’s assets and resources do not count in determining eligibility. It is possible for a child with a disability to receive both means-tested benefits and entitlement benefits. Even if a disabled child loses SSI due to a cost of living increase in the SSDI amount, that child cannot lose Medi-Cal.
Estate planning to preserve government benefits. The Special Needs Trust or Supplemental Needs Trust (“SNT”) provides a unique opportunity to maximize the quality of life for a child with a disability. The trust is an opportunity for parents to plan for their child’s future by ensuring that there will always be funds to hire advocates and care providers to take over when parents are gone.
The SNT is designed to protect a disabled child’s government benefits, SSI and Medi-Cal, while providing a supplemental fund to pay for services and special programs. Many children with special needs require extraordinary medical care and specialized services. Medi-Cal is often the only health insurance that children with disabilities are able to obtain. The SNT can pay for medical care not otherwise covered by Medi-Cal.
The Special Needs Trust may be drafted as part of the Family Living Trust or it may be created as a stand-alone Irrevocable Gifting Trust. In a typical Living Trust scenario, on the death of the parents (or any other family member who has created an SNT under their estate plan) the family trust assets are distributed to the trustee of the SNT to be used for the disabled child’s special needs. The SNT directs the trustee to distribute funds for the benefit of the disabled child but not directly to that child. Distributions of trust funds directly to that child may cause her to lose her monthly SSI amount. Accordingly, the Trustee purchases goods and services for the child’s benefit thereby maximizing and enhancing that child’s quality of life.
The SNT also allows parents to continue the care and support they were providing for their child while they were alive. For example, many parents supplement their adult child’s basic necessities, food and shelter, without jeopardizing continued eligibility for means-tested government benefits. The SSI amount of $940.72 (federal benefit rate plus California supplement) severely limits the beneficiary’s access to adequate housing,  since the beneficiary also has to use this amount to pay for the basic necessities of food and utilities. The SNT provides an on-going opportunity for families to continue to supplement food and shelter while maintaining a child’s government benefits. Under the current law, paying for food and/or shelter may only reduce the beneficiary’s SSI Federal Benefit Rate by one-third (depending if the child lives in her own home or in the home of another) rather than dollar for dollar for the cost of the food or shelter provided.
Another way to provide quality housing is to have the SNT hold title to the family residence, a place that’s safe and familiar. The trustee of the SNT should be authorized to hire care providers on a live-in or visitation basis enabling the beneficiary to live in the least restrictive environment. Because title to the residence is held in the name of the SNT, the Trustee may allow the beneficiary to live there as long as she is willing or able. On the death of the trust beneficiary, the California Department of Health Services may not file an estate claim against the trust for reimbursement for medical costs and services paid on behalf of the trust beneficiary.
The decision as to who should be the trustee of the SNT can be perplexing. Siblings may not want the responsibility of managing a brother or sister’s trust during his or her lifetime. That sibling may be more willing or better suited to oversee care providers and specialized services. An institutional trustee or a private professional fiduciary is a good alternative to a family member. However, because that institutional trustee or private fiduciary usually has not had the benefit of having known the disabled child throughout her lifetime and because they are unfamiliar with the disabled beneficiary’s special needs, the use of a Trust Advisory Committee is a practical consideration. Parents should choose trusted friends and/or family members who know and understand the beneficiary’s particular circumstances to serve as members of the Committee. The role of the members is to procure services, programs, care providers, advocates, and therapies or treatments that they agree will enhance the beneficiary’s quality of life and then direct the trustee to purchase those services.
An alternative to creating an SNT at the death of a parent, is to create an Irrevocable Special Needs Trust during one’s lifetime. The purpose of this trust is to receive gifts of money or property so that there is an available fund now (or in the future) to pay for therapies, schools, camps and care providers that otherwise might not be available to that child and that parents may not be able to afford. This is a good opportunity for grandparents and aunts and uncles to make gifts into a trust for the benefit of a disabled family member. Given that the Covid-19 pandemic has closed schools and given that many children with special needs are unable to receive instruction by remote computer teaching thus limiting their access to qualified special education teachers, paying for tutors and therapists during this difficult time will help children receive special education services. Invested properly the trust funds will provide a nest egg for the disabled child during her lifetime, especially at a time when parents are no longer able to care for their child because of aging and their own health care issues.
The Irrevocable Trust is drafted to receive gifts of a present interest in order to take advantage of the current annual gift tax exclusion amount of $15,000 per person each year. This provision allows numerous people to fund the trust annually. The Trust must be carefully drafted to avoid jeopardizing the disabled beneficiary’s benefits.
In addition, given the current gift and estate tax exemption amount of $11,580,000 per person, and given that the IRS has stated that there will be no “clawback” of gifts made under the current law which is due to sunset in year 2025, this is an opportunity for families with large estates to use their lifetime exclusion amount to fund the trust.
For parents, the Special Needs Trust offers some peace of mind that their child will be taken care of and provided for after they are no longer here.
Raising a child with special needs can be challenging. Despite the laws that ensure a free public education to all children with disabilities, parents often have to fight with school districts to obtain services such as speech therapy, occupational therapy, physical therapy or a classroom aide, services that are guaranteed under federal law. Hiring advocates to assist in obtaining these services can be costly and stressful. While most children are able to move out into the world as independent adults, a child with special needs may need lifetime care, dependent on their parents for their basic activities of daily living. Planning an estate for families who have a child with a disability is an opportunity for estate and trust attorneys to make a difference in the lives of parents who struggle with the future of their special child.
Barbara Bergstein, Esq. is a sole practitioner in Sherman Oaks, California. Her practice includes estate planning, including estate planning for individuals with special needs, trust administration, and estate and gift tax planning. She is frequently consulted regarding the uses and drafting of Special Needs Trusts. She can be contacted at firstname.lastname@example.org
 Medi-Cal covers those individuals who cannot afford health insurance through the Covered California Insurance Plan which includes Obamacare.
 529 Plans and CUTMA accounts may disqualify the child from receiving SSI and Medi-Cal.
 The Federal Benefit rate for year 2020 is $783; the California State supplement amount is $160.72.
 42 U.S.C. § 1396a
 A Special Needs Trust is not necessary if the disabled child is receiving SSDI and Medicare only.
 Increased annually for cost of living changes
 Access to Section 8 Housing in Los Angeles County can exceed 2 years or more. In addition Section 8 housing treats Special Needs Trust differently than the Social Security Administration.
 20 CFR §416.1130; Social Security Program Operation Manual System (POMS) SI 00835.
 Third party Special Needs Trusts, trusts funded with the assets of someone other than the disabled beneficiary, are not subject to estate claims. However, First Party Special Needs Trusts funded with the assets of the disabled beneficiary, usually from a personal injury award or settlement, are subject to estate claims. 42 U.S.C § 1396p
 A family member may pay for these services directly, but a trust fund if invested well, accumulates and grows building a nest egg for that beneficiary.
 Crummey vs Commissioner 397 F. 2d 82 (1968) A 9th Circuit Court decision, and its progeny.
 On November 26, 2019, the Treasury Department and the IRS issued final regulations under IR-2019-189 confirming that there will be no “clawback” for gifts made under the increased estate and gift tax exclusion put in place by the Tax Cuts and Jobs Act of 2017 (the “Act”)
 Individuals With Disabilities Education Act (IDEA) Section 504 of the Rehabilitation Act of 1973