Important Things to Know about Estate Planning: Lessons from Gonzalez v. City National Bank

An appellate court in the case of Gonzalez v. City National Bank recently affirmed a probate court’s order that denied a plaintiff’s request after the death of plaintiff’s daughter that the remainder of a special needs trust be distributed to the plaintiff rather than the Department of Health Care Services. 


The distribution was used as reimbursement for Medi-Cal payments for the daughter’s medical care. The court held that the mandatory recovery rules for special needs trusts apply to trust remainders. 


An opinion letter by the Centers for Medicare & Medicaid Services supports the department’s perspective that the Department of Health Care Services is allowed to recover for the daughter’s Medi-Cal expenses. 


Understanding this issue concerning the dissolution of special needs trusts is just one of the many issues that individuals in control of a special needs trust should understand. 


In the hopes of providing additional details about the role of estate planning trusts, this article reviews some of the other important elements that you should about special needs trusts. 


# 1 – Avoid Disinheriting Special Needs Family Members


Many parents believe that they should pass assets onto “healthy” children and avoid passing these assets onto a child with disabilities. In reality, this can end up having undesirable consequences. Instead, it is a much better idea to pass an equal portion of assets through an estate plan to a special needs trust.


# 2 – Know How Not to Fund a Trust


IRAs and retirement plans are often not the most effective method of funding a special needs trust. In many cases, the minimum required distribution of these trusts can negatively impact means-test special needs benefits. 


By passing retirement benefits to a special needs trust will also likely result in additional taxation on an estate, and reduce the amount of benefits that are available for a child. 


# 3 – Select Special Need Trustees Carefully


While many people are already familiar with this piece of advice, it is absolutely critical to exercise care in selecting a trustee who will oversee a special needs trust. This trustee will be given great discretion in deciding how benefits are handled. 


While it might be tempting to select an adult sibling of a special needs child, this can create challenges if the sibling is later appointed as a beneficiary.


# 4 – Review Allocation of Expenses and Taxes


During estate planning, it is critical to review how expenses and taxes are apportioned in your estate plan. As part of establishing a special needs trust, you should make sure to articulate whether estate taxes will be either charged against the trust or allocated to the remaining shares. Requiring a special needs trust to pay a portion of estate trusts will reduce funds that are set aside for a child with disabilities 


Speak with an Experienced Estate Planning Lawyer


Special needs play a complex but valuable role in estate planning. If you have questions or concerns about this process, you should not hesitate to speak with an experienced attorney. 

Contact Ettinger Estate Planning today to schedule a free initial consultation.

Contact Information