Law Offices of Roshni T. Desai
Long-term Planning For Orange County

Be aware of trusts’ potential limitations as well as benefits

You may know that certain wills and trusts have different benefits. However, as we at the Law Offices of Roshni T. Desai, are aware, different types of estate planning in California can also have limitations.

Consider, for example, special needs trusts. As we have explained in previous posts, special needs trusts can help disabled people remain eligible for Medicaid benefits while holding onto their assets. A first-party special needs trust allows you to create the trust yourself if you are disabled but mentally competent. Special needs trusts have other benefits, including trust funds being tax deductible, creditors having no claim on trust funds and ensuring the money is used for your care. However, as CNBC warns, first-party special needs trusts have a payback provision, of which you may not be aware.

After your death or the revocation of the trust, the payback provision requires that the remainder of trust funds by used to repay the government for Medicaid services paid on your behalf. If there is anything remaining, the money will revert to you or go to your designated heirs. As you might expect, there is often little or nothing left to go to relatives after a first-party special needs trust beneficiary dies. You might avoid this complication by agreeing to a third-party special needs trust, which is set up on your behalf by someone else. Typically, third-party special needs trusts do not have a payback provision.

However, you may not like the idea of your independence being compromised by giving someone else the power to create your trust. Therefore, as our page on wills and trusts points out, it is important to educate yourself on the different options you have and make an informed decision.

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