If you intend to benefit a disabled child or beneficiary with an inheritance, you better get to amending your Living Trust. Or, maybe you are thinking that you can’t provide for the disabled beneficiary because he/she would lose their Medi-Cal or SSI. Not so — you can provide for them, but you better get crackin.
How many times have I heard, “We wish we had known that before mom and dad died.” Yeah, then it is too late. So, what can you do now to provide for the disabled beneficiary?
1. Amend your Living Trust to include a new section for a Special Needs Trust for such beneficiary within your Living Trust; or
2. Amend your Living Trust to provide that your Successor Trustee is to have a Special Needs Trust (SNT) arranged for the disabled beneficiary on your death; or
3. Create and partially fund the SNT now with a nominal amount of cash so that you know that this Trust is operating during your lifetime. Many clients prefer this alternative so they can enjoy the appreciation conveyed by the disabled child or beneficiary during the lifetime of the client. Additionally, the parent/client is the Creator or Trustor of the Trust.
Each of these alternatives creates a Third-Party SNT because it is created by you the Third Party. If your disabled child creates the SNT for themselves, it is known as a First-Party SNT. The huge difference is this:
Third Party Trust: On the death of the disabled beneficiary, the remaining funds in the SNT may be distributed to family members or anyone the Trustor prefers.
First Party Trust: The remaining funds must be payable to Medi-Cal to reimburse for whatever has been paid to the disabled beneficiary.
Also, under many circumstances there is a requirement that the Court must order a First Party SNT if the beneficiary has no parents or grandparents to arrange the Trust for them. This becomes costly. To take advantage of the Third Party SNT you need to take action now. As Nike says: “Just Do It.”