Elder Law - Len and Rosie


What’s a Special Needs Trust?

Dear Len & Rosie: I am the trustee of my recently deceased mother’s trust, which includes a Special Needs Trust for my disabled sister, Judith.  Both before and after our mother’s death, my sister has rented a property owned by the trust.  As trustee, can I pay off the mortgage on this property and turn it over to my sister while staying in compliance with the terms of the trust?

I am particularly concerned about the following passage in the trust “For the purpose of determining Judith’s eligibility for any public benefits, no part of the principal or undistributed income of the trust estate shall be considered available to her.”- Ben

Dear Ben: The Special Needs Trust is a means by which your mother can provide for the care and support of your sister without causing her to lose Medi-Cal, Supplemental Security Income (SSI) or other public benefits. Both Medi-Cal and SSI are “needs-based” programs. Your sister cannot keep her benefits if she has more than $2,000 of non-exempt assets. That’s why the Special Needs Trust contains the provision you quoted in your letter.

For a Special Needs Trust to work, there are other restrictions as well. For the most part, as trustee you have no discretion to give food, shelter or cash to your sister if such distributions would cause her to lose her benefits.

Without reviewing your trust in detail, we cannot give you a complete answer to your question. But in general, it is not a good idea to distribute the home outright to your sister. First of all, the Special Needs Trust probably has beneficiaries who are supposed to inherit what’s left of the Special Needs Trust after your sister’s death. If you give the home outright to your sister, the rights of these beneficiaries could be affected, and you could get sued for failing to protect their inheritance.

Also, if your sister dies owning the home, it will be subject to Medi-Cal estate recovery claims after her death, for any benefits paid on behalf of your sister after her 55th birthday, as well as Medi-Cal nursing home benefits regardless of her age. But if the home is held for your sister’s benefit in the trust, it will avoid Medi-Cal estate claims.

What you should consider doing is to pay off the mortgage and allocate the home into your sister’s share of the trust. As trustee, you can hold the home for your sister’s benefit, allowing her to continue to live there. If she does not pay rent, the amount of SSI she receives each month will be reduced because providing her with a free place to live counts as in-kind support, but there will be no loss of her Medi-Cal benefits. The most important thing for you to do is to review your mother’s trust with an elder law attorney and figure out the best way of setting up your sister’s Special Needs Trust to ensure that she is well provided for in accordance with your mother’s wishes. -Len & Rosie

Len Tillem and Rosie McNichol are elder law attorneys. Contact them at 846 Broadway in Sonoma, at 996-4505, or Lentillem.com. Len also answers legal questions each weekday, 3 to 4 p.m., on Newstalk 910 AM.


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