There are two types of special needs trusts (“SNTs”)¹. A third-party SNT is by far the most common type of SNT, and this article presents a general overview of such trusts. A third-party SNT is a specialized trust that allows a family to provide support to a disabled child or other family member without jeopardizing the disabled person from qualifying for public assistance. These trusts are established and funded by someone other than the disabled person–typically, parents, grandparents, or siblings.² Such trusts generally are funded upon the death of the donor, and the trust typically is drafted as part of a will or a living trust, although a stand-alone trust document can be drafted and structured to receive gifts from several donors.

If properly structured, the SNT will allow the disabled family member to inherit money without being disqualified from various federal and state public benefit programs. Assets that can be owned by the SNT include real property, personal property, cash, stocks, and bonds. Moreover, the SNT can be named as a beneficiary of life insurance policies. The trustee of the SNT will have full discretion to determine how to best utilize the funds in the trust to supplement the basic benefits provided from government public assistance agencies, thus enhancing the beneficiary’s quality of life without jeopardizing the receipt of valuable public assistance. This specialized trust is drafted so that the inherited funds will not be considered as belonging to the beneficiary in determining the beneficiary’s eligibility for “needs-based” or “means-tested” public benefits; rather, the trust itself holds title to the property for the benefit of the disabled beneficiary. “Needs-based” public benefits include SSI (supplemental security income), Medi-Cal/Medicaid, IHSS (in-home support services), and Section 8 housing. The SNT is not necessary to protect regular social security, such as SSA and SSDI.

“Special needs” are defined broadly and include anything necessary to maintain the beneficiary’s health, safety, and well-being when such benefits are not provided by public assistance agencies. These needs may include rehabilitation and training programs, educational expenses, entertainment, recreation, social outings, vacations, home repairs and improvements (including modifications for handicapped use), cleaning and laundry services, telephone, television, and internet services, audio, video, computer, and adaptive equipment, companion services and home health aides, personal hygiene (hair and nail care), furniture, clothing, bedding, toys, musical instruments, cigarettes, transportation expenses (including gas, purchase of a car or van, modification, insurance, and maintenance costs), legal advice, burial expenses, and other items that will enhance the beneficiary’s quality of life. Even certain medical needs can be met by the SNT, such as annual check ups, newer and more effective medications or more sophisticated medical treatments and procedures that are not covered under Medi-Cal/Medicaid, dental expenses, physical therapy, and vision care.³ Food (including restaurant meals) and shelter (including rent, purchase of a home, property insurance, property taxes, and utilities) also can be paid from the SNT, but some governmental benefits may be reduced if the funds are used in this way; however, the beneficiary’s quality of life can be improved greatly by additional funds, so it is best to give the trustee the discretion to supplant public aid where appropriate.⁴

Proper estate planning with the SNT will balance family resources with those available from public agencies, thus making a significant difference in a disabled person’s quality of life. The SNT also can alleviate the caretaking responsibilities of the disabled person’s other family members, such as siblings. If you are considering the SNT as a way of supplementing the basic needs of a disabled family member without disqualifying that person from public assistance, it is essential to contact an attorney with expertise in this area, as SNTs are highly sophisticated and receive a high level of scrutiny from Social Security and Medi-Cal/Medicaid.

The Law Office of Patricia L. Andel can properly draft SNTs for your disabled loved ones. Contact us for more information.⁵

1. These are also known as “supplemental needs” trusts.
2. A first-party “self-settled” SNT is established by a disabled individual (who is under the age of 65) with that individual’s own funds for that individual’s own benefits. The typical scenario for this type of SNT is where the disabled individual has received a settlement or jury award from a personal injury, medical malpractice, or other lawsuit, or has received an inheritance. The key difference between first-party and third-party SNTs is that with a first-party SNT, any amounts remaining in the trust after the disabled beneficiary’s death must be used to reimburse Medi-Cal/Medicaid for any medical assistance that has been paid by that agency on behalf of the disabled individual. No such requirement exists for third-party SNTs.
3. This is not an all-inclusive list, but offered as guidance only.
4. The SNT trustee should not give the beneficiary over $20/month in cash, as SSI benefits will be reduced.
5. This article is intended to provide a general overview of the related law, which is subject to change. The information contained herein is not to be construed as “legal advice.” If legal advice is required, you should seek the services of a competent estate planning and/or family law attorney.

Under the California Health Care Decisions Law (California Probate Code §§ 4600 to 4947) an advance health care directive (formerly known as a durable power of attorney for health care & which merges the “living will” under former Health & Safety Code §§ 7185 et seq.) memorializes a person’s wishes for medical care and guides medical decision-making if the person is unable to communicate with his or her health care providers. An advance health care directive allows a person to select an individual he or she trusts to make decisions about medical care should the person become incapacitated and addresses serious issues such as life support, artificial nutrition and hydration, organ donations, wishes regarding an autopsy, and final arrangements, such as funeral, burial, or cremation arrangements.

High-profile cases, such as the recent Florida case of Terri Schiavo, the Missouri case of Nancy Cruzan, and the New Jersey case of Karen Ann Quinlan, show why it is imperative for everyone to have an advance health care directive. All of these cases involved years of legal battles involving dozens of judges in numerous jurisdictions, with appeals all the way to the U.S. Supreme Court, and ultimately, legislation enacted in every state.

The Law Firm of Patricia L. Andel, A.P.C. can protect California residents and their loved ones with advance health care directives. Contact us for more information. ¹

1. This article is intended to provide a general overview of the related law, which is subject to change. The information contained herein is not to be construed as “legal advice.” If legal advice is required, you should seek the services of a competent estate planning attorney.

If you do not have a Will or Trust in place at the time of your death (which is called dying “intestate”), your assets will be distributed under your state’s “statutes of descent and distribution” through the probate process. For most people, this statutory distribution scheme is not what they would choose.

California’s¹ “default will” is set forth in the California Probate Code and gives a priority ranking to your heirs based on their relationship to you and the characterization of your property.² This article presents the general rules of intestate succession. Note that there are many ancillary rules and exceptions to these rules based on various circumstances.

Intestate Share of Surviving Spouse or Domestic Partner

As to your community or quasi-community property, your surviving spouse³ will succeed to your entire one-half interest (in addition to already owning his or her one-half interest).

As to your separate property, the intestate share of your surviving spouse or domestic partner depends upon who else survives you:

• If you are not survived by children, grandchildren, parents, siblings, or nieces/nephews, your surviving spouse or domestic partner gets all of your separate property;
• If you are survived by only one child or the issue⁴ of a deceased child (your grandchild), or if you have no issue, but are survived by parents or their issue (your siblings, or if deceased siblings, your nieces/nephews), your surviving spouse or domestic partner gets one-half of your separate property;
• If you are survived by more than one child, one child and the issue of one or more deceased children, or the issue of two or more deceased children, your surviving spouse or domestic partner gets one-third of your separate property.

Intestate Share of Other Heirs

The portion of your intestate estate not passing to your surviving spouse or domestic partner (or if you have no surviving spouse or domestic partner, the entire estate), will pass to your heirs in the following order of priority, with heirs in each category taking equally and to the exclusion of all heirs in subsequent categories:

• your issue (your children, or if deceased, your grandchildren)
• your parents
• the issue of your parents (your siblings, or if deceased, your nieces/nephews)
• your grandparents, or if deceased, the issue of your grandparents (your aunts/uncles, or if deceased, your cousins)
• the issue of a predeceased spouse (your step-children)
• your next of kin (based on degree of relationship)
• your predeceased spouse’s next of kin
• the State of California

Priority of Personal Representative

If you die intestate, the state statutes also give a priority ranking to who will serve as your personal representative in the probate court. Again, many people would not agree with this statutory order of priority.

• your surviving spouse or domestic partner
• your children
• your grandchildren
• your parents
• your siblings
• your nieces/nephews
• your grandparents
• your aunts/uncles, or if deceased, your cousins
• the issue of a predeceased spouse or domestic partner (your step-children)
• your next of kin (based on degree of relationship)
• your predeceased spouse’s/domestic partner’s next of kin
• a public administrator appointed by the court

Moreover, your administrator will have to post a bond commensurate with the size of your estate and will be subject to stringent court supervision. If you have a Will, you typically waive the bond requirement and give your executor authority to administer your estate under the California Independent Administration of Estates Act, thus minimizing court intervention.

Remember the old adage: “If you fail to plan, you plan to fail.” You can avoid the state’s intestate succession statutes by consulting an attorney and having your wishes clearly drafted in a Will or Trust.⁵

1. IMPORTANT NOTE: This article is written based on California law. If you reside in another jurisdiction, you should consult a local attorney.
2. See California Probate Code §§6400 et seq.
3. If you are a “domestic partner” as defined by California law, you cannot acquire community property.
4. “Issue” means a person’s lineal descendants of all generations.
5. This article is intended to provide a general overview of the related law, which is subject to change. The information contained herein is not to be construed as “legal advice.” If legal advice is required, you should seek the services of a competent estate planning attorney.

The California Probate Code has “family protection” statutes protecting a spouse and children from unintentional omission from a decedent’s will or trust.  Therefore, if you intend not to provide for your spouse/children, you must fit within one of three categories, or the presumption against such omission will control:

A.     OMITTED SPOUSE²

(1) Your intent to fail to provide for your spouse must appear in your will/trust;

To ensure that your intention is for your spouse not to take under your testamentary documents, you should make a specific statement to that effect in your will/trust.  A subsequent marriage after you have executed your will/trust does not fit within this category.  It is imperative that if you marry subsequent to executing your estate plan, you execute a codicil to your will and/or an amendment to your trust setting forth your intention that your spouse does not take under these documents.

(2) You provide for your spouse by transferring assets to your spouse outside of your will/trust and your intention that such transfer be in lieu of taking under your will/trust is clear by sufficient evidence;

Examples of transfers outside of your testamentary documents include titling assets with your spouse in joint tenancy or community property with right of survivorship, and designating your spouse as beneficiary to life insurance policies, annuities, retirement plans, or bank accounts.  To ensure that your intention is for your spouse to take under such transfers in lieu of taking under your testamentary documents, it is advisable to make a specific statement to that effect in your will/trust.

(3) Your spouse made an agreement waiving the right to share in your estate.

This can be done through a properly drafted prenuptial or marital agreement.

B.     OMITTED CHILD³

(1) Your intent to fail to provide for your child/children must appear in your will/trust;

To ensure that your intention is for your child/children not to take under your testamentary documents, you should make a specific statement to that effect in your will/trust.  The subsequent birth or adoption of children after you have executed your will/trust does not fit within this category.  It is imperative that if you have children subsequent to executing your estate plan, you execute a codicil to your will and/or an amendment to your trust setting forth your intention that your child/children do not take under these documents.

(2)  You provide for your child/children by transferring assets to them outside of your will/trust and your intention that such transfer be in lieu of taking under your will/trust is clear by sufficient evidence;

Examples of transfers outside of your testamentary documents include titling assets with your child in joint tenancy, and designating your child as beneficiary to life insurance policies, annuities, retirement plans, or bank accounts.  To ensure that your intention is for your child to take under these transfers in lieu of taking under your testamentary documents, it is advisable to make a specific statement to that effect in your will/trust.

(3)  You have one or more children and devise or give substantially all of your estate to the other parent of the omitted child/children.

The legislative presumption here is that the other parent will use your estate to care for your mutual children.

If you do not fit within one of the statutory requirements for intentionally failing to provide for your spouse/children as set forth above, the legislative presumption under the “family protection” statutes is that you mistakenly failed to provide for them.  In such case, your spouse/children will take their intestate share of your estate⁴ (except a spouse cannot receive more than one-half of your separate property).⁵

1. This article is written based on California law. If you reside in another jurisdiction, you should consult a local attorney.
2. See Cal. Prob. Code §§21610, 21611.
3. See Cal. Prob. Code §§21620, 21621.
4. See Cal. Prob. Code §§21610, 21620.
5. This article is intended to provide a general overview of the related law, which is subject to change. The information contained herein is not to be construed as “legal advice.” If legal advice is required, you should seek the services of a competent estate planning attorney.

1.    Changes in Family Relationships (relating to you or your beneficiaries)

• Birth
• Adoption
• Marriage
• Divorce or separation
• Death of spouse, beneficiary, or fiduciary¹
• Attitude change of beneficiary or fiduciary toward you

2.    Changes in Personal Conditions

• Serious illness, deterioration in health, or disability (you, beneficiaries, or fiduciaries)
• Change of residence to another state
• Unemployment
• Retirement
• Change in insurability (life insurance)
• Financial irresponsibility of beneficiaries or fiduciaries

3.    Changes in Economic Conditions

• Increase or decrease in assets
• New business interests (partnership, corporation, LLC)
• Acquisition of new real estate
• Acquisition of property in another state
• Inheritance

4.    Changes in the Law

• Changes in state income tax, estate & gift tax, & probate laws
• Changes in federal income tax, estate & gift tax laws

Absent such events, a good rule of thumb is to review these documents with your attorney every three to four years to determine whether amendments need to be made.²

1. Fiduciaries include executors, trustees, guardians, and agents under your powers of attorney and health care directives.
2. This article is intended to provide a general overview of the related law, which is subject to change. The information contained herein is not to be construed as “legal advice.” If legal advice is required, you should seek the services of a competent estate planning attorney.

• Modifying or revoking a revocable living trust;
• Eliminating a right of survivorship in the other spouse under property held as joint tenancy or community property with right of survivorship;
• Changing beneficiaries of life insurance policies, pension plans, employee benefit plans, IRAs, or other types of retirement contracts.

Therefore, you should consider taking such actions prior to a family law petition being filed. If property issues are complex in your case, you should consider bifurcating the marital status and property issues, so that the marital status is finally adjudicated after six months and the restraining orders applicable to estate planning will no longer apply.

You are not prohibited, however, from doing the following and need not give notice to the other party or seek court approval:

• Create, amend, or revoke a will;³
• Create a revocable living trust (but you cannot fund it yet);⁴
• Create, amend, or revoke a durable power of attorney or advance health care directive.

See the discussion below for the items you should consider in preparing these documents.

• Review your executor, guardianship, and beneficiary designations in your will.
  • the executor under your will should mirror the trustee of your trust
  • a natural parent who is not deemed unfit will always have priority as guardian of a minor’s person
  • the guardian of a minor’s estate under your will, however, does not need to be the natural parent and should mirror the trustee of your trust
  • make sure you name alternate executors and guardians, as well
  • review your property disposition upon your death and make sure you also name contingent beneficiaries
• Review your trustee and beneficiary designations in your revocable living trust.
  • the guardian of a minor’s estate under your will should mirror the trustee of your trust
  • you should expressly prohibit an ex-spouse from serving as trustee on behalf of a minor’s estate (unless you desire otherwise) and from having the power to remove a trustee on behalf of a minor
  • make sure you name alternate trustees, as well
  • review your property disposition upon your death and make sure you also name contingent beneficiaries
• Review your agent designations in your durable power of attorney and advance health care directive.
  • make sure you name alternate agents, as well
• Review beneficiary designations in your life insurance policies, annuities, Roth IRAs, and retirement accounts.
  • request change of beneficiary forms from your life insurance companies and your plan administrators.
• Review P.O.D. (“pay-on-death”) & T.O.D. (“transfer-on-death”) beneficiary designations on your bank and brokerage accounts, stock certificates, and bonds.

As you should now realize by reading the information in this article, it is advisable that you consult both a family law attorney and an estate planning attorney if you are going or have gone through a change in your marital status.⁵

1. IMPORTANT NOTE: This article is written based on California law. If you reside in another jurisdiction, you should consult a local attorney.
2. Although technically different, divorce (dissolution) and annulment will be treated similarly for the purposes of this article, and all future references to divorce or dissolution also will impliedly reference annulment.
3. When you execute your Marital Settlement Agreement, review it to make sure it does not revoke all prior wills, as this would also revoke a will you made in anticipation of ending the marital relationship.
4. If you die during the family law proceedings, the family court will lose jurisdiction over you. The probate court will now have jurisdiction over your estate, and probate law will control. Your will can now serve as a “pour-over” to fund your trust.
5. This article is intended to provide a general overview of the related law, which is subject to change. The information contained herein is not to be construed as “legal advice.” If legal advice is required, you should seek the services of a competent estate planning and/or family law attorney.

Most importantly, you must retitle your real estate. This can be done by executing Trust Transfer Deeds, Quitclaim Deeds, or Grant Deeds that transfer your real property from you as an individual to you as trustee of your trust. These deeds must be recorded with the County Recorder’s offices in the counties where each piece of real estate is located. While there is a nominal recording fee for each deed, there will be no reassessment of your real estate for tax purposes, as a transfer into a living revocable trust is not deemed a “change in ownership.” Nor will there be any documentary transfer tax, as this transfer is not deemed a “sale.”

Moreover, you should change the vesting on all bank accounts, Certificates of Deposit, stocks, bonds, and brokerage accounts going into the trust. For bank accounts, this will require you to sign new signature cards as trustee of your trust. Note that some banks and brokerage firms have their own Certification of Trust form that you must complete for transferring title to your trust, and if stocks are involved with your brokerage account, you will likely be asked to get a Medallion Guarantee of your signature.

Tangible personal property without written title can be transferred to the trust by simply executing an assignment frequently called a “Transfer of Personal Effects.” This will give the trustee of your trust the authority to distribute all personal assets according to your written wishes.

Do not forget about “intangible” property rights when funding your trust. For example, if you are the owner of a copyright or patent or are entitled to royalties under any other type of contract, such property rights can be quite valuable and should be assigned to the trust. Similarly, business interests under partnerships, LLCs, or other entities should be assigned to the trust.

Some people desire to retitle their vehicles and vessels into the trust. This is not necessary for most vehicles due to their minimal value. If you choose to retitle your vehicle ownership, simply endorse your pink slip and indicate that this transfer is a “gift” to you as trustee of your trust. Mail the pink slip to the DMV with the proper fee, and you will receive a new pink slip changing title to you as trustee of your trust. If you choose not to retitle your vehicle or vessel, upon your death, your trustee will complete an “Affidavit for Transfer Without Probate” available from the DMV to transfer title to any California-titled vehicle or vessel.

It is not advisable that you transfer qualified accounts to your trust, or you could experience serious tax consequences. These accounts should have named beneficiaries who will take directly from that account upon your death without the necessity of probate. While it is permissible and sometimes desirable to name the trust as beneficiary of such accounts, it is not always advisable due to tax and other financial consequences. Therefore, it is important that you consult with your financial planner or CPA to discuss the advisability of such action.

Similarly, the ownership of life insurance policies and annuities does not need to be retitled into the trust, as these policies also have named beneficiaries and will pass outside of probate. Unlike qualified accounts, however, you can freely name the trust as primary or contingent beneficiary of these policies. If you wish to change the beneficiaries of your life insurance policies or annuities, request a Change of Beneficiary form from your life insurance carrier.

To summarize, having a living trust prepared is an important first step to avoiding the costs and time delays that would result if your estate were subjected to the probate process. Properly funding your trust is an important second step to ensure that your estate will, in fact, avoid probate.*

*This article is intended to provide a general overview of the related law, which is subject to change. The information contained herein is not to be construed as “legal advice.” If legal advice is required, you should seek the services of a competent estate planning attorney or tax advisor.