San Diego Estate Planning Lawyer Blog
There are many kinds of trusts used in estate planning. One you may not have heard about before is a special needs trust. This is a trust designed to provide for a person who is receiving certain types of government benefits, such as Medi-Cal or Supplemental Security Income.
Because these programs are means-tested, a beneficiary can lose his or her eligibility if he or she suddenly receives a large amount of cash, say from an inheritance or a lawsuit judgment. But by creating a special needs trust, that money can be placed in the hands of a trustee, who retains legal ownership. The trustee can then use trust funds to purchase goods and services for the beneficiary without compromising government benefits.
Trustee Removed After Questionable Property Deal
A special needs trust can be especially useful in helping a child who suffers from a birth defect or other permanent disability. Parents can utilize a special needs trust to help ensure their child has access to lifetime medical care. Such a trust must be carefully established and maintained to ensure it fulfills its intended purpose.
Consider a recent California case. A now-10-year-old child was born with a heart defect. Surgeons attempted to repair the defect, but their negligence only made the problem worse, leaving the child “totally and profoundly disabled,” according to court records. The parents successfully brought a medical malpractice claim, which yielded a lump-sum payment of more than $160,000 and a $5,000 monthly annuity, to be paid for the rest of the child’s life.
That may sound like a lot of money, but the child is blind, suffers from cerebral palsy, and has permanent brain damage. Even with a monthly annuity, the child faces a lifetime of medical bills and is unlikely to ever earn any income on his own. To that end, the proceeds of the lawsuit were used to fund a special needs trust.
Unfortunately, the original trustee made some questionable financial decisions. Without prior court approval, the trustee used trust funds to purchase a house for the child and his family. The seller was the child’s grandfather. A court-appointed guardian found the trust paid the grandfather more than twice what the property was actually worth. A California probate judge later removed the trustee and canceled the sale.
Need Help With a California Special Needs Trust?
A special needs trust is not a casual undertaking. Nor is it like a revocable living trust typically used in estate planning. As illustrated by the above case, courts take a more active role in monitoring special needs trust to ensure they are not abused. In fact, a court order is generally necessary to establish a special needs trust funded by a personal injury settlement.
Even if you are funding your own special needs trust for a child or other family member from your own assets, you need to follow certain procedures to maximize the beneficiary’s legal protections. This is not something you should handle yourself. If you need help from a qualified San Diego estate planning lawyer in setting up a special needs trust, contact the Law Office of Scott C. Soady today.