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When an individual has a disability that impacts his or her ability to earn a living, manage money, or provide for his or her personal needs, specialized legal planning can provide a system of supports to ensure a high quality of life for that individual as well as protect any public benefits he or she may be eligible for. These supports can ensure health, personal, and financial needs are met as well as protect the individual from being unduly influenced or taken advantage of. Planning can involve many different facets, including protection of public benefits, planning for decision making after age 18, using estate planning and trusts to protect assets and provide instructions for care, use of ABLE accounts, and Special Needs Trusts.

Plan Early

One of the most important things you can do is to plan early. This will give you the most amount of flexibility in planning.

Some families with young children are uncertain whether they should plan early since the child’s functioning can improve as they grow. In this situation, we can customize planning to use different approaches if the child becomes high functioning.

In planning for your loved one with special needs, it is important to understand that there are different types of special needs trusts (a key component of many special needs plans) and that the timing of when the trust is created impacts the type of special needs trust that can be used, whether or not Medi-Cal gets paid back from trust assets on the death of the beneficiary, and the cost involved in setting up the trust.

During your lifetime, you can establish a Third Party Special Needs Trust for your loved one with special needs. This type of special needs trust has the most amount of flexibility, can receive assets from multiple sources, has no Medi-Cal payback on the death of the beneficiary, and is often the most cost effective to establish. If you pass away and your loved one receives assets outright, only a First Party Special Needs Trust can be used. This type of trust can only be funded with the assets of the individual with a disability, must be for the sole benefit of the individual with a disability, has a Medi-Cal payback on the death of the beneficiary and can only be set up by a parent, grandparent, legal guardian, or the Court.

Some ways in which planning may be impacted by a delay:

• If unexpected events cause your early death or incapacity. In this situation, you would no longer be able to plan for your loved one with special needs.

• If a special needs trust is needed after parents and grandparents no longer have capacity or are deceased, setting up a special needs trust may involve going to Court. This tends to increase the cost of setting up the trust.

• Planning after an individual has already received assets (such as from an inheritance) limits the type of special needs trust that can be used.

• Planning for an individual who is over age 65 limits the type of special needs trust that can be used.

• Early planning allows you to set up a third party special needs trust that other family members can direct assets to. Often grandparents or other family members intending to support the individual with special needs will leave assets outright or in a trust that does not protect public benefits. When you set up a third party special needs trust during your lifetime, we can provide a letter to family members explaining why it is important to leave any inheritance to the special needs trust.

• If a conservatorship is needed and planning is not done until after age 18, there may be a period of time where your incapacitated child has legal authority to enter into contracts (buy a car, open a credit card), get married, decline educational services, move, or make other decisions that can have a significant impact on their well-being.

When an individual who receives public benefits or who is applying for public benefits receives a litigation settlement, special planning is required to ensure those benefits are not lost.

Additionally, when an individual lacks capacity to make legal and financial decisions (an incapacitated adult or a minor), California law requires special procedures and forms be filed to obtain Court approval of the settlement. This process, known as a Minor’s or Disabled Person’s Compromise, protects the incapacitated person by ensuring the settlement terms are in his or her best interests and that the settlement proceeds are not mismanaged.

Planning for these situations can involve a conservatorship, special needs trust, Minor’s Settlement Trust, Medicare Set Aside, and a handful of other available solutions. Ensuring the proper procedures and planning are followed can be daunting.

Mercy Hall has extensive experience helping plaintiffs and their attorneys navigate their settlement planning options and legal requirements.

For a more detailed explanation of planning that may be involved in a minor’s settlement (many of the same provisions apply for an incapacitated adult), see the following article:

Settling a minor’s lawsuit: A procedural and practical primer

We serve families and individuals of all shapes and sizes and believe that everyone can benefit from an estate plan. At a minimum, an estate plan can ensure that your wishes are carried out if you become incapacitated or when you die. Beyond that, estate planning can provide a structure for transfer of your assets that accomplishes:

• Ensuring the individuals or professionals you choose manage your assets

• Tax planning and savings

• Planning for financial management of any assets inherited by your children or young or inexperienced beneficiaries

• Ensuring privacy in your affairs on your death

• Reducing the cost of administering your estate on your death

• Providing for efficient and timely distribution of your assets on your death

• Providing for any charitable contributions

• Ensuring your health care wishes and end of life decisions are carried out