Navigating the financial landscape for individuals with special needs requires careful planning, and a frequent question arises regarding the use of trust funds to cover expenses related to participating in research studies, particularly when compensation is involved. The answer is nuanced and depends heavily on the specific terms of the trust, the nature of the research, and the potential impact on needs-based government benefits like Supplemental Security Income (SSI) and Medi-Cal. Generally, it *is* possible, but requires careful structuring and often, pre-approval to avoid jeopardizing essential support.
What Happens If I Don’t Plan Properly?
I remember working with a client, David, whose son, Ethan, had Down syndrome. Ethan was excited about the opportunity to participate in a research study exploring new therapies. They hadn’t considered the implications for Ethan’s SSI benefits. Ethan received a modest stipend for his participation, which quickly pushed him over the asset limits, resulting in a temporary suspension of his benefits. This created immense stress and hardship for the family, highlighting the importance of proactive planning. They were able to rectify the situation by establishing a carefully structured “pass-through” trust arrangement, but it was a stressful and avoidable situation.
How Does a Special Needs Trust Work with Research Compensation?
A special needs trust (SNT) is specifically designed to hold assets for the benefit of an individual with disabilities without disqualifying them from government assistance programs. These trusts typically fall into two main categories: first-party or (d)(4)(a) trusts, funded with the beneficiary’s own assets, and third-party trusts, funded by someone other than the beneficiary. The rules regarding research compensation differ somewhat depending on the type of trust. For a third-party SNT, the trustee generally has broader discretion regarding how funds can be used, as long as it’s for the beneficiary’s health, education, maintenance, and support. However, even with a third-party trust, large payments could be viewed as altering the beneficiary’s financial picture and potentially impacting eligibility. For a (d)(4)(a) trust, the rules are more stringent, and any funds received must be used for the benefit of the individual and cannot be counted towards the resource limit, meaning they may need to be spent down quickly or applied to pay for other allowable expenses. It’s critical to remember that the goal is to supplement, not replace, government benefits.
What About the “Double Step-Up” in Basis for Community Property?
In California, community property receives a “double step-up” in basis upon the death of a spouse. This means that the basis of the deceased spouse’s half of the community property is adjusted to the fair market value at the time of death. The surviving spouse also receives a step-up in basis for their half. This can result in significant tax savings when the assets are eventually sold. For example, if a couple purchased a home for $200,000 years ago, and it’s now worth $800,000, the surviving spouse’s basis would be $400,000, meaning they would only pay capital gains tax on the appreciation above that amount. This is a powerful estate planning tool, and it’s crucial to work with an experienced attorney to maximize these benefits. All assets acquired during a marriage are considered community property, owned 50/50, so proper planning is essential for both spouses.
What If I Don’t Have a Will – What Happens Then?
If an individual dies without a will in California, the laws of intestate succession dictate how their assets are distributed. For a surviving spouse, they automatically inherit all community property. However, the distribution of separate property is more complex. It’s divided between the spouse and other relatives, such as children or parents, based on a specific formula. For example, if there’s a surviving spouse and one child, the spouse typically receives one-half of the separate property, and the child receives the other half. This can lead to unintended consequences and potential family disputes. Creating a will or trust ensures that your wishes are clearly expressed and that your assets are distributed according to your intentions. Furthermore, in California, formal probate is required for estates over $184,500. Statutory fees for executors and attorneys can be quite costly, making probate an expensive process.
What Types of Wills are Valid in California?
California recognizes two types of valid wills: a formal will and a holographic will. A formal will must be signed and witnessed by two people at the same time. This means that all parties must be present when the will is signed and witnessed, ensuring a clear and legally sound document. A holographic will, on the other hand, is entirely handwritten by the testator (the person making the will). No witnesses are required for a holographic will, making it a simpler option. However, it’s crucial that the material terms of the will are entirely in the testator’s handwriting, as any typed or pre-printed portions could invalidate the will. Both types of wills are legally binding, but a formal will is generally preferred due to its greater clarity and reduced risk of challenges.
Our firm, The Law Firm of Steven F. Bliss ESQ., is dedicated to assisting families in navigating these complexities. We work closely with trustees to ensure they understand the “California Prudent Investor Act” when managing investments within a special needs trust. We also advise on the enforceability of “no-contest” clauses – which are narrowly enforced and only apply if a beneficiary contests a trust or will without “probable cause.”
43920 Margarita Rd ste f, Temecula, CA 92592Steven F. Bliss ESQ. can be reached at (951) 223-7000.
Don’t leave the future to chance. Protect your loved ones and ensure their financial security. Contact us today for a consultation and let us help you create a comprehensive estate plan that meets your unique needs.