Special Needs Trust Lawyers in Valencia and Oxnard
California Special Needs Trust Planning
Do you have a loved one who has special needs? If so, you definitely need
the guidance of a special needs planning attorney who really understands
public benefits AND knows how to BOTH draft and implement a special needs
trust. Amazingly, many estate plans that we review do not take into account
the extraordinary needs of a beneficiary who has special needs. In fact,
some living trust estate plans we've reviewed leave an inheritance outright
to a special needs person, basically guaranteeing disastrous results.
In an effort to negate such results, we have found that some advisors
counsel their clients to simply leave the inheritance of a special needs
child to a sibling who will care for that child later. In real life, it's
hard to imagine worse advice. First of all, that sibling could lose the
inheritance in a lawsuit (e.g., divorce, car accident, bankruptcy, etc.)
or simply fail to use the funds “properly.” Second, this “solution”
does not even begin to address the needs of your special needs loved one.
Frankly, even where advisors “get it right” by helping their
clients establish some sort of third-party special needs trust —
because that advisor does not regularly implement special needs trusts
— they fail to deftly draft that special needs trust to address
the needs and desires of the special needs beneficiary.
What Exactly Does a Good Special Needs Plan Look Like?
It's actually not that hard to create. However, a good special needs trust
and plan always requires a team of potential “helpers.” Contrary
to popular belief, the trustee of such a plan should almost never be a
family member. Time and again, we have seen such plans fail. The reason
is simple: Unless that family member trustee has specific experience helping
those with special needs on a full-time basis, after a very short period
of time (despite the best of intentions), that family member trustee becomes
overwhelmed and frustrated with their role, leading them to give up. Instead,
a private professional fiduciary is usually the best person to serve as
trustee of a special needs trust. Similarly, the trust should provide
that a “care manager” periodically checks in on your special
needs loved one and prepares a “guide” outlining what it is
that they need in the relatively near future. Then, both the private professional
fiduciary trustee, as well as care manager, report to a “family
member trust advisor” who oversees and coordinates their roles.
The trust advisor also can approve or disapprove of trustee/care manager
actions while retaining the power to fire and hire new different professionals,
as well as retaining other important powers. This checks-and-balances
approach to special needs trust planning is the cornerstone of any good
special needs trust plan.
Explore how a special needs trust can benefit you and your loved ones today. Call
(661) 306-2500 or
contact us online to get started.
As an aside, please note that the special needs trust focused on in this
section is a stand-alone irrevocable trust (generally used when there
are enough assets to justify its creation; note that it can do a lot more
than a simple special needs trust provision contained within a revocable
living trust) which is a totally different type of trust than a
revocable living trust. Special needs trust provisions in a revocable living trust make a lot
of sense when the distribution available to a special needs beneficiary
is limited and/or the special needs beneficiary doesn't truly need a lot
of help. A standalone irrevocable special needs trust is a much more robust
instrument, meant to provide lifetime help to a special needs beneficiary.
It is the gold standard when it comes to special needs planning.
With an irrevocable, standalone special needs trust, there are a lot of
specific issues that need to be addressed. For example, under the SECURE
Act passed in December of 2019, there are now more restrictive rules for
beneficiaries taking distributions from retirement plans. However, qualified
disabled or chronically ill persons can obtain favorable tax treatment
by taking retirement plan distributions out over their lifetime. That
might mean it makes sense to specifically leave a retirement plan to a
Special Needs Trust, rather than other beneficiaries. But what if a remainder
beneficiary of that special needs trust is neurotypical (which is generally
the case)? Well, such calls for very careful tax planning. Either way,
special needs trusts also need to be able to retain income in the discretion
of the trustee for the benefit of your special needs beneficiary. However,
retained trust income in a special needs trust is taxed at the top federal
rate of 37% at a mere $13,050 of taxable income in 2021.
Now, if the trust is set up to be a qualified disability trust, it can
claim an exemption of up to $4,300 in 2021, which is not subject to phase
outs. In any event, tax planning is just one of the complicated areas
that arise in this arena and setting up a special needs trust willy-nilly
is probably not a good idea. Instead, if you need to set up a standalone,
irrevocable special needs trust for your loved one, please take the time
to research and find a qualified special needs trust attorney in your
area to help you.