A sad case currently before the San Francisco Probate Court, In the Matter of the Fiorani Living Trust, deals with the tragic issue of what happens when a person abuses his position as trustee over a special needs trust meant to protect an individual who has developmental disabilities.
Years of financial mismanagement, theft, and downright despicable conduct took place before action was taken to protect Lucia Fiorani, the person the trust was designed to look after. After a concerned relative began asking questions about what was going on with the money Fiorani’s parents had left for her care, the extent of the abuse came to light. Claims against those responsible have been filed under California’s elder abuse and dependent adult abuse statutes to attempt to right the wrongs that were done.
Millions of dollars and property in the Russian Hill neighborhood are at stake as the case continues to work its way through the court system. The lesson for parents and other loving relatives is clear: take care when establishing a special needs trust.
By way of background, special needs trusts are often created for those who lack the capacity to handle their own financial affairs. They can be especially helpful for people with mental or physical disabilities who would lose public benefits (such as Medicare, Medi-Cal, or SSI) as a result of receiving an inheritance or receiving the proceeds from a lawsuit.
Special needs trusts ("SNTs') can be established for children or adults who have problems that make them unable to provide for themselves financially and who lack the ability to pay for their own medical care, food, shelter, and other basic needs. Typically, SNTs are established for people with mental or physical disabilities, health conditions,or the types of personal problems (for example, an individual with substance abuse problems) that might result in their needing public assistance now or in the future.
As illustrated in this case, there is no upper limit on the amount of money and property that can be put into a special needs trust for a loved one's benefit. Many people even use life insurance policies to fund these kinds of trusts.
Special needs trusts, when constructed appropriately, can help protect the disabled person from being taken advantage of and losing the money that is intended for their benefit.
Such trusts offer a way to hold assets for your loved one, while at the same time preventing him or her from being disqualified from receiving Supplemental Security Income (‘SSI’) or Medi-Cal. Although your loved one is named as the beneficiary of the trust, the assets are not counted as his or her available resources because the assets are not within his orher control.
A gift or inheritance that leaves your disabled beneficiary with non-exempt assets in excess of $2,000 is basically a gift to the federal government, as it will disqualify the beneficiary from receiving public benefits until the assets are “spent down” to $2,000 or less. He or she may also not qualify for private health insurance, and could be left paying for his or her medical expenses. Given the high cost of medical treatment, disqualification from Medi-Cal could cause your beneficiary’s inheritance to be exhausted in short order. After that, your beneficiary will be completely dependent on other family members and meager governmental assistance.
To avoid such a situation, you should act now to set up a special needs trust to protect your beneficiary when you’re no longer around to do so. There are many other considerations that must be kept in mind when you are planning for a special needs individual and this article was meant to make you aware of but a few of them. For more information, feel free to contact my office.
See Our Related Blog Posts:
Special Needs Trusts: Estate Planning Strategies for the Special Needs Family
Asset Protection and Rising Financial Abuse of the Elderly
All the best,
This is the second of two articles on reviewing a trust. In this one, discuss how we evaluate a living trust agreement, and how that differs from developing an estate plan.
My team and I examine dozens of things when we evaluate a trust document. To give you an idea, a few of them are:
- Does the trust agreement confirm to third-parties that a married trustor/trustee has authority to act when his/her spouse cannot (if desired by client)?
- Does the trust agreement include provisions to alter distributions to a surviving spouse in the event of remarriage after the death of the first spouse?
- Does the trust agreement include a common trust provision when one or more of the primary beneficiaries has not yet graduated from college?
- Does the trust agreement give the trustee of a continuing trust an appropriate amount of flexibility to make disproportionate distributions based upon the relative needs of the beneficiaries?
- Does the trust agreement set up continuing trusts for the beneficiaries, which are tailored to the needs of each trust beneficiary?
Is there evidence that the trust is properly funded? An unfunded or partially funded revocable living trust does not avoid probate. Great care must be taken to ensure that all necessary assets held by the trustor individually are either retitled to the trust, or that the trust is considered as an appropriate “designated beneficiary.”
The difference between evaluation of a trust and creating an estate plan
In trust reviews, my intention is to provide you with an objective analysis of the document, and nothing more. Still, my review may be very beneficial to you because your estate plan will eventually be interpreted by attorneys and financial professionals that you do not know. So it is far better to identify ambiguities or omissions in your estate plan while you are alive and healthy than when you are not.
When I am hired for estate planning, I conduct an in-depth "discovery" process that includes:
Gathering personal and financial information
First I need to review your personal data and your financial information, and discuss a potential plan to meet your goals and objectives. I need to learn about your family and how the various members handle money. I understand that this is sensitive information, something not always easy to talk about. I am not shocked by any characters lurking in your family tree – we all have our fair share of them!
Discussing goals and values
You have built up a large estate, and you probably have very specific wishes that you want someone to carry out. Before I can recommend any course of action, we need to meet in person so that I can learn about you, your values, what you are trying to accomplish and, maybe most importantly, what you want to avoid. When I am creating a plan for both spouses, it is an absolute requirement that both spouses meet with me.
Focus areas in an estate planning engagement
Here are a few of the many questions I ask the first time we get together to discuss your estate plan. The following is not a complete list - it is a sampling:
- Did you have any prior marriages?
- Have you signed any pre- or post-marriage contracts?
- Do you have an “umbrella” liability insurance policy?
- If any children are under 18, have you decided who would be their guardians?
- Do you have any business interests?
- Do you wish to leave money or assets to charitable or religious causes?
- Are you concerned about providing for your grandchildren’s education?
- Do you wish to prevent anyone from receiving a portion of your estate?
- Do you wish to make any provisions in your estate plan for your pets?
The more I understand about your circumstances, the better I can educate you about your choices and guide you so that your family members won’t need to make stressful decisions in trying times. You will have the peace of mind of knowing that you have “done right” by your family.
All the best,
Special children require special estate planning. If the child is receiving government benefits, it is especially important to let family members know that their well-meaning gifts must be carefully planned. For example, a well-meaning loved one could accidentally disqualify the child’s government benefits.
For example, Mike is 22 years old and suffered a birth defect that makes it difficult to walk. He lives in subsidized housing and makes ends meet by working at a local grocery store a few hours each week.
Sometimes his parents help him with money, but Mike also receives a monthly Supplemental Security Income (SSI) payment of $800.
Mike’s parents created a first party Special Needs Trust (SNT) to provide for his care and needs. Recently Mike’s Aunt Joan died. Unbeknownst to Mike’s parents, Joan left Mike $60,000 in her trust.
Aunt Joan’s thoughtful gesture ended up creating serious problems for Mike. Suddenly he had more than $2,000 in the bank – which can disqualify him from receiving SSI. Luckily, it was not enough to disqualify him for his subsidized apartment, or he could have ended up out on the street.
This is a serious problem for a special needs family.
Strategies for the special needs family
In this case, there are a number of strategies that will permit Mike tp benefit from his Aunt Joan’s gift and still keep his aid:
- The first party Special Needs Trust that Mike’s parents created includes a state reimbursement or “payback” provision. If Mike transfers the monetary gift from Aunt Joan into the Trust, his eligibility will be undisturbed.
- Mike can spend all the money before the end of the month in which he received it.
- Mike can purchase or invest in exempt resources, such as an automobile. If Mike inherits enough money, he can use the gift to buy a residence for himself.
Consider the consequences of large gifts
Things would have been much simpler if Aunt Joan had left the money to the SNT Mike’s parents created for him – there would have been no disruption in or threat to his eligibility for certain services.
It’s important that parents let their friends and relatives know about any Special Needs Trust they may create for their special needs child. Parents should also make those loved ones aware that any contributions they wish to make need to go into that Trust so the child’s access to public benefits won’t be jeopardized.
There are many other considerations when you are planning for a special needs child. This article was meant to make you aware of a few of them. For more information, please feel free to contact my office.
All the best,