The Importance of Special Needs Trusts

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A sad case currently before the San Francisco Probate Court, In the Matter of the Fiorani Living Trust, deals with the tragic issue of what happens when a person abuses his position as trustee over a special needs trust meant to protect an individual who has developmental disabilities.

Years of financial mismanagement, theft, and downright despicable conduct took place before action was taken to protect Lucia Fiorani, the person the trust was designed to look after. After a concerned relative began asking questions about what was going on with the money Fiorani’s parents had left for her care, the extent of the abuse came to light. Claims against those responsible have been filed under California’s elder abuse and dependent adult abuse statutes to attempt to right the wrongs that were done.

Millions of dollars and property in the Russian Hill neighborhood are at stake as the case continues to work its way through the court system. The lesson for parents and other loving relatives is clear: take care when establishing a special needs trust.

By way of background, special needs trusts are often created for those who lack the capacity to handle their own financial affairs. They can be especially helpful for people with mental or physical disabilities who would lose public benefits (such as Medicare, Medi-Cal, or SSI) as a result of receiving an inheritance or receiving the proceeds from a lawsuit. 

Special needs trusts ("SNTs') can be established for children or adults who have problems that make them unable to provide for themselves financially and who lack the ability to pay for their own medical care, food, shelter, and other basic needs.  Typically, SNTs are established for people with mental or physical disabilities, health conditions,or the types of personal problems (for example, an individual with substance abuse problems) that might result in their needing public assistance now or in the future.

As illustrated in this case, there is no upper limit on the amount of money and property that can be put into a special needs trust for a loved one's benefit.  Many people even use life insurance policies to fund these kinds of trusts.

Special needs trusts, when constructed appropriately, can help protect the disabled person from being taken advantage of and losing the money that is intended for their benefit.

Such trusts offer a way to hold assets for your loved one, while at the same time preventing him or her from being disqualified from receiving Supplemental Security Income (‘SSI’) or Medi-Cal. Although your loved one is named as the beneficiary of the trust, the assets are not counted as his or her available resources because the assets are not within his orher control.

A gift or inheritance that leaves your disabled beneficiary with non-exempt assets in excess of $2,000 is basically a gift to the federal government, as it will disqualify the beneficiary from receiving public benefits until the assets are “spent down” to $2,000 or less. He or she may also not qualify for private health insurance, and could be left paying for his or her medical expenses. Given the high cost of medical treatment, disqualification from Medi-Cal could cause your beneficiary’s inheritance to be exhausted in short order. After that, your beneficiary will be completely dependent on other family members and meager governmental assistance.

To avoid such a situation, you should act now to set up a special needs trust to protect your beneficiary when you’re no longer around to do so. There are many other considerations that must be kept in mind when you are planning for a special needs individual and this article was meant to make you aware of but a few of them. For more information, feel free to contact my office.

Published In: Business Torts Updates, Wills, Trusts, & Estate Planning Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Janet Brewer, Law Offices of Janet L. Brewer | Attorney Advertising

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Janet Brewer
Law Offices of Janet L. Brewer

Janet Brewer has practiced California estate, gift-planning, and probate law exclusively since 1991.... View Profile »


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