California Couple Plans for the Future with a Special Needs Trust

In an ongoing segment on financial planning and advice, a recent article published by the Wall Street Journal highlighted the unique circumstances of a Paradise, CA couple and their family.

The pair was seeking advice on a range of topics, including paying down their credit card debt, assessing their financial future, and implementing estate planning goals. The article noted that the couple was looking at strategies that would prioritize the needs of their youngest child, who was born with Down Syndrome.

Based upon their situation, the best recommendation was to create a special needs trust for the little girl, which would be funded by the proceeds of three life insurance policies at the death of her parents.

A special needs trust is a structure that protects the interests of a person with a disabling medical condition, who is entitled to monetary benefits through the federal Supplemental Security Income (SSI) program, Medicaid, and other public assistance plans.

Charles D. Stark, a Sonoma County attorney who focuses on special needs trusts in the context of estate planning, agreed with the suggestion. “It’s understandable that parents and others want to provide for a loved one with special needs in their estate plan. However, you can encounter serious problems when you include a specific bequest in a will or trust provision. Giving the person money outright makes him or her ‘too rich.’ They don’t qualify for SSI and related programs, since many of the laws look at assets and/or income in awarding benefits. A special needs trust solves this issue.”

An individual creates a special needs trust by executing a document that complies with federal and state law.

Many resources can be used to fund the trust, such as lifetime gifts, a bequest in a will, distributions of living trust proceeds, life insurance, and others. The special needs trust appoints a trustee to manage the funds on behalf of the beneficiary.

Mr. Stark explained that, “The beneficiary with special needs doesn’t have control over the funds, so they’re not considered assets or income for purposes of SSI.

This separation ensures the individual is still eligible for all available assistance programs.” It is important to also note that, by law, the trustee cannot make direct distributions to the beneficiary. Instead, the trustee expends the funds for goods and services that benefit the person with special needs. Examples of proper expenditures include:

● Medical costs;
● Compensation for caregivers;
● Costs for education and extracurricular activities;
● Household supplies and furnishings;
● Transportation, utilities; and,
● Other living expenses.


Contact Charles Stark today to discuss your case.

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