It can be incredibly challenging to plan for a time when you are not around to care for your loved ones. However, facing this reality by creating an estate plan is one of the most selfless actions you can take. This is especially true if you have a child, sibling, or another close loved one who has a serious disability. If you have been responsible for caring for a loved one who cannot care for himself or herself, you may want to find a way of providing for him or her after you pass away. One way to do just this is through an estate planning tool called a special needs trust, also known as a supplemental needs trust.

Planning for the Care of a Loved One with Special Needs

A special needs trust or supplemental needs trust is an estate planning instrument that can be critically important to individuals who provide care for a disabled loved one. This instrument works by allowing the individual to place funds in the trust, which can then be used for the future care of their disabled loved one. A special needs trust allows you to put aside money for your loved one without affecting the disabled person’s eligibility for government assistance programs. Special needs trusts can be funded through gifts and inheritances or a lump-sum settlement. Without a special needs trust, money left to your loved one could potentially disqualify him or her from certain government aid programs.

Leaving Money to a Loved One Could Increase His or Her Available Assets Too Much

A substantial portion of government-funded aid is distributed to individuals under a certain income level. For example, Medicaid, Supplemental Security Income, and housing subsidies all have income criteria that a person must meet in order to qualify for financial assistance. If you leave money to your disabled loved one without the appropriate estate planning instrument, it could be counted toward their assets. If the funds are substantial, this money could bump your loved one’s income up to a level that makes them ineligible for programs with income or asset limits.

You may already know that there are multiple types of trusts you can use, such as revocable trusts or irrevocable trusts. In California, there are even more specialized types of trusts you can use for specific purposes. Whether you are mostly concerned with minimizing your tax liabilities or probate expenses, or worried about providing for a loved one with special needs, there is likely a type of California trust that will meet your need. A qualified estate planning attorney can discuss your options with you and determine what types of trusts are right for your estate plan.

Trusts That Meet Specific Needs

Many estate plans involve the use of more than one trust for a number of reasons. Separate trusts may be created for different beneficiaries, or to meet different needs. Some estate plans use both revocable and irrevocable trusts to pass different assets. For other needs, one of these types of trusts may fit nicely into your estate plan:

• Special needs trust - There are two types of special needs trusts, depending on who the intended beneficiary is. First-party SNTs are used to benefit the same person who initially funded it. These are often created when an incapacitated adult receives monies such as through a lawsuit settlement or inheritance but can be used as an incapacity planning tool. Third-party SNTs are a testamentary tool used to benefit another person, such as an adult child with disabilities. Either way, SNTs are used to provide for any needs a disabled person may have that are not covered by Medi-Cal or other public benefits, but without affecting the beneficiary’s eligibility for these assistance programs.
• Life insurance trusts - Irrevocable life insurance trusts are typically used to minimize an estate’s tax liabilities. By using an irrevocable trust to pass life insurance benefits, these proceeds are kept out of a decedent’s taxable estate. Additionally, the funds can then be managed by a trustee rather than being handed to the beneficiaries as a lump sum.
• Blind trust - Often used by estate planners who anticipate family conflict, blind trusts refer to trusts that are created without the knowledge of the trustee or beneficiaries.
• Charitable trusts - Charitable trusts can be used to distribute money to a nonprofit over time, with the remainder sometimes going to the nonprofit and sometimes going to an alternate beneficiary. These can reduce your estate’s tax liability, serving both your beneficiaries’ interests and the community through charitable giving.

These are just a few of the types of specialized trusts available to California estate planners. There are more options available depending on your unique needs.