The key to estate planning for families who have children with special needs is to make sure that any funds or other assets put aside for a child or adult who is receiving, or could receive, government benefits (e.g. Medi-Cal) are placed in a "Supplemental Needs Trust", or "SNT", rather than given outright. A receipt of assets by a special needs person receiving government benefits could jeopardize those invaluable benefits.
SNT's are trusts that restrict the trustee in how they make distributions for the benefit of the special needs person. The trustee can make payments only for items and services that are not already paid for through government benefits. For example, government benefits generally cover expenses for basic needs, such as food, clothing, and shelter, while the SNT can be used to pay for supplemental needs, such as utilities, medical care (that Medi-Cal doesn't cover), special equipment, education, job training or entertainment.
SNT's created and funded by someone other than the special needs person (such as their parents) can direct to whom the remaining assets should go upon the death of the special needs person (such as the person's children or siblings).
Remember, assets that have beneficiary designations and jointly held property should be looked at carefully to make sure assets are not passing outright to a special needs person upon your death. But what if a special needs person does inadvertently receive assets, thus jeopardizing their Medi-Cal eligibility? In that case, a "self-settled" SNT can be created. The difference with a self-settled SNT is that when the special needs person dies, Medi-Cal must be reimbursed first for all monies spent on the special needs person during life. Any property remaining in the SNT can then be paid to family members.
One way to fund SNT's to ensure that your special needs child is taken care of after you are gone is to use life insurance. The life insurance (on your life) can be purchased by an irrevocable life insurance trust (an "ILIT") that you create; the trust's terms can provide for an SNT for your special needs child. The trustee of that trust is directed to split the trust into multiple trusts if you have more than one child and only one with special needs.
Contact our office for further information. We offer a free initial consultation.