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Probate Of Estates For Persons With Special Needs

1. ESTATE PLANNING TO QUALIFY FOR AND TO MAXIMIZE GOVERNMENT BENEFITS:

An inheritance, personal injury award, or any other form of reportable income will result in the temporary interruption or loss of governmental benefits until the sums received is reduced to governmental eligibility levels. Parents and relatives who intend to make a gift to a family member with special needs should consider the following: 

A. No Will Or “Intestacy”: Parents or relatives who die without a Will
may still transfer real and/or personal property to their heirs related by blood. This is called “intestacy”. If such a beneficiary has special needs, this intestate inheritance could result in the loss of SSI and Medi-Cal eligibility, liability for overpayments of benefits received, and even the loss of the entire inheritance to liens by State and/or Federal agencies for benefits provided on the basis of financial indigence. The beneficiary is thus forced to attempt to shelter such an estate by petitioning the Court to establish a Special Needs Trust, resulting in attorney’s fees and costs, periodic future accountings, and any remaining estate is subject to SSI/Medi-Cal “pay-back” at the termination of the Special Needs Trust. 

B. Testamentary Gifts: The transfer of property by means of a Will usually incurs probate costs, and the payment of state and federal taxes. Gifts to a special needs beneficiary without the shelter of a properly drafted Special Needs Trust creates a formal “Estate”. The beneficiary’s remedy is to shelter such an estate by petitioning the Court to establish a Special Needs Trust, with resulting in attorney’s fees and costs, periodic future accountings all reducing the amount of that estate, and any remaining estate is subject to SSI/Medi-Cal “pay-back” at the termination of the Special Needs Trust.

C. Will Or Living Trust With Special Needs Trust Provisions: Depending upon the size of the estate and need for tax planning, the recommended means of leaving assets to a person with special needs is by use of a Will or a Living Trust, which includes a properly drawn “Special Needs Trust” to shelter the asset, income and resources from SSI/Medi-Cal calculations as “available income”. Special Needs Trusts are recognized and accepted by the Social Security Administration, and such a sheltered estate is exempt from SSI/Medi-Cal “pay-back” requirements at the termination of the Special Needs Trust. 

2. 1993 OMNIBUS BUDGET RECONCILIATION ACT (OBRA 93):

OBRA Section 1917 (d) provides that States count for purposes of an individual’s Medicaid eligibility “assets” as defined in Section 1917(e)(1)(a) to include all income or resources of the individual and spouse, including any income or resources which the individual or spouse is entitled to but does not receive because of action by the individual or by certain other designated persons or entities.

This definition could apply to a disabled person’s settlement with or judgement against a third person, such as a casualty company, had not the proceeds been diverted away by means of a trust.

To be covered by the trust rules of OBRA Section 1917 (d), a trust must have been established by an individual, other than by will, with assets of the individual forming all or part of the trust corpus. 

A. Individual Trusts: Are similarly exempted from OBRA treatment, if:

  1. Established on or after August 11, 1993, and
  2. For the benefit of the person with a developmental disability, by a parent, grandparent, legal guardian, or the court, and,
  3. Contains the assets or property rights of the person with a developmental disability who was both:
    1. Under age 65 when the trust was established whether or not currently age 65 or over, and
    2. Who, at time trust established, was determined disabled per Title
      22, Section 50167 (a) and who is currently disabled, and
    3. Provides that, upon death of the developmentally disabled person or upon termination of the trust, DHS shall receive all assets remaining in the trust up to an amount equal to the total medical assistance paid on behalf of that individual by Medi-Cal.

B. Pooled Trusts are also exempted from OBRA 93 treatment if the trust was:

  1. Established on or after August 11, 1993, and
  2. Established and managed by a non-profit association, and
  3. Contains assets of the person with developmental disabilities, and
  4. maintains a separate account for each beneficiary of the trust; i.e., but for purposes of investment and management of funds, the trust pools these accounts, and
  5. Provides that DHS, upon death of the developmentally disabled person or upon earlier termination of the trust, receive all amounts remaining in that individual’s account, equal to the amount of medical assistance paid on behalf of that individual to the extent of the amounts remaining in the trust and are not retained by the trust to cover costs of the individual’s remaining management and investment fees, outstanding bills within the terms of the trust, and funeral/burial expenses, and
  6. Each account is established solely for the benefit of the person with the developmental disability by that same individual, his or her parents or grandparents, legal guardian or the court.

C. Supplemental Trust:

NOTE: Federal regulation requires that states, in making Medi-Cal resource eligibility determinations, cannot be more restrictive than the SSI regulations. To the extent that any state’s regulations are more restrictive, they are unenforceable.

3. Example Of Problems Without Proper Estate Planning:

Bobby, 18 years old, is developmentally disabled by diagnosed cerebral palsy and Asperger Syndrome (autism). He receives both SSI and Medi-Cal. Bobby’s mother Ann died without a will. Bobby is his mother’s sole intestate heir.

Bobby’s aunt Julia now must seek appointment as his Limited Conservator, of both his Person and his anticipated probate Estate, and she must also probate his mother’s estate. There are now two separate proceedings going on at the same time. 

Once Julia is ready to finalize the Probate of Ann’s intestate estate, she must then petition the Court to establish a Special Needs Trust over Bobby’s inheritance, in order to protect Bobby’s continued and uninterrupted receipt of his SSI and Medi-Cal benefits. This is now a third separate proceeding, all stemming from the same facts.

Once the Estate is closed and the Special Needs Trust is ordered established, Julia will be ordered to post bond on Bobby’s Special Needs Trust assets, and account to the Court each two years, incurring additional attorney’s fees and costs. And at the termination of the Special Needs Trust, Bobby will be required to pay back to Medi-Cal.


*The information on this website is for general information purposes only. Nothing on this site should be taken as legal advice for any individual case or situation. This information is not intended to create, and receipt or viewing does not constitute, an attorney-client relationship.

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