Posts By: Gene Osofsky

Q. My wife and I were wondering about tax and cost-of-living increases that we will see in 2025. Do you have any information on that?
A. Yes. Here are some of the increases that you will see in 2025:
Annual Exclusion Amount Gifts (“AEA”): Presently, you can make individual gifts in the amount of $18,000 per person, without the need to file a gift tax return . A married couple, filing a joint return, can double that amount in order to make gifts of $36,000 per recipient. As of January 1, 2025, that amount will increase to $19,000 per recipient, which again may be doubled for a couple filing a joint return. So, if you have 2 children and 4 grandchildren, and you both wish to make an Annual Exclusion Gift to each of them in 2025, together you could then  gift them a total of $228,000 (calculated as follows: ($19K + $19K) X 6 recipients. No Gift Tax Return would be due and these AEA gifts would not reduce your lifetime federal estate or gift tax exemption.
Federal Estate Tax Exemption: The Federal Estate Tax Exemption is a credit against the value of your estate and is applied upon death to determine if an Estate Tax is due. That credit currently shelters $13,610,000 per person, but is scheduled to increase to $13,990,000 for persons dying in 2025. For most persons, that exemption is more than enough to shelter their entire estates from federal estate tax.  However, these exemptions are derived from the Tax Cuts & Jobs Act (TCJA) signed into law on 12/22/2017, and by terms of the law, itself, are scheduled to “sunset” at the end of 2025. Thereafter, the older exemptions will return, updated for inflation. Most observers estimate that the exemption will then adjust to about $7 million per person, which is still more than most people need in order to shelter their estates from tax.
Medicare Part B Premiums: For most folks, the Medicare Part B premium will increase from $174.70 per month to $185 per month, but the premium could be higher depending upon your incomes.
Medicare Out-Of-Pocket Costs: Beginning in 2025, the out-of-pocket costs for drugs covered by your Part “D” Drug plan will be capped at $2,000 for the year, but only for those drugs covered under your Part D plan. This cap will be welcome news for seniors with high out-of-pocket drug costs.
Social Security Retirement Benefits: You and your wife’s monthly benefits will increase by approximately 2.5% per month.
Supplemental Security Income (“SSI”): Federal benefits for folks on SSI, who qualify by reason of having very modest resources and low incomes, will increase to $1,206.94 per month (including the California State Supplement) and to $2,057.83 per month for a couple (with the California State Supplement).  This represents an increase of about $24 per month for a single individual and $35 per month for a couple. The resource caps remain unchanged, i.e. $2,000 for a single person and $3,000 for a couple on SSI.
Good question and I hope the above helps.

Posts By: Gene Osofsky

Q:  I have a Living Trust, prepared some time ago. I recently heard that it was a good idea to also have a Will. However, I thought the Trust took the place of a Will. Can you clarify this?

A. Sure. Attorneys who prepare trusts generally also prepare a backup Will to coordinate with the Trust. The companion Will is designed to “catch” assets that were inadvertently left out of the Trust. The Will then typically directs that these omitted assets be “poured back” into the Trust and be distributed according to the terms of the Trust. Attorneys often refer to these wills as “Pour Over” Wills, which accurately describes their purpose.

Ideally, you would never need to use the “Pour Over” Will, because all assets would be part of your trust.  However, in the real world, we find that clients often neglect to take proper steps to retitle assets into their Trust.  Remember, in order to transfer assets into your Trust, you generally have to sign a formal document, such as a deed in the case of real property, which formally re-titles assets into the name of the trustee of the Trust. By the way, in most cases the trustee is the same person who created the trust (the trustor), but the trustor must still observe the formality of retaking title in his own name “as trustee”.

The assets omitted from the trust and “captured” by the Pour-Over Will still have to go through probate. However, the advantage of having a Pour-Over Will is that the omitted assets will ultimately go to your designated Trust beneficiaries as part of a coordinated plan. Without the Pour-Over Will, the omitted assets would be distributed to your heirs-at-law as identified by statute, which could be different persons from those beneficiaries named in your Trust.

A related topic arises where a trustor has clearly listed assets on a schedule attached to his Trust, but neglects to formally retitle the assets into his name “as trustee”.  This happens fairly frequently. In this situation, the trustor clearly intended to put the described assets into the Trust, but for whatever reason failed to take formal steps to do so. Here, the law provides a quicker remedy, which attorneys often refer to as a “Heggstad Petition”, so named because of the 1993 court decision which approved this remedy.  Thus, where the trustor’s intent to include an asset in his Trust is clear, it is possible to petition the court for an order immediately transferring the assets into the Trust, so that they are not subject to probate and the possibility that they may go to unintended individuals.

For the above reasons, we always recommend that a trust contain a detailed Schedule of Assets, that upon creation of the trust the client take immediate steps to retitle those assets into the trust, and that the trust be accompanied by a companion “Pour-Over Will”. Caution: some assets, such as retirement accounts, should never be re-titled into the name of the trust, as that could trigger an adverse tax result.

Posts By: Gene Osofsky

Q.  My father signed a Power Of Attorney some years ago, naming me as his agent. The POA is effective upon Dad’s incapacity, which I believe has arrived .  Some family members could use some financial help. Would it be legal for me to make gifts to them from his assets using the POA? Can I also include myself as a gift recipient?
A.  Great questions, and I believe many readers would be interested in the answers. Here is the approach that I recommend in order to come up with the answers:
First, to prove that the “triggering event” has occurred to make the POA effective, evidence of your Dad’s incapacity, such as the written opinion of one or two physicians (as the POA may require), must be secured in writing and either attached to the POA and/or presented to any third party, such as a bank, who may be asked to rely upon it when implementing your instructions;
Second, the power to use your Dad’s assets to make gifts must be expressly stated in the Power Of Attorney (“POA”); general powers, no matter how seemingly broad and comprehensive, are not sufficient.
Third, in answer to you further question as to whether you can make gifts to yourself, be advised that the law requires still another recital in the POA, i.e. the recital that you may “self- deal” in exercising the gifting powers and/or an otherwise clear recital that you may do so. This is because you would otherwise have a fiduciary duty to use your dad’s assets only for his benefit, but not for your own personal benefit. Thus, if the POA did not have those recitals and you opted to gift to yourself, you would arguably be breaching that fiduciary duty. However, if there is an express recital in the POA that permits you, as his agent, to include yourself as a gift recipient, then you may rely upon that recital to include yourself as a gift recipient, provided that any other conditions in the POA are satisfied, such as those mentioned below. By the way, many POA’s refer to the designated agent as the “Attorney-In-Fact” (“AIF”), which is the correct legal terminology.
There is another caution to observe. Many POA’s contain a further qualification in order to make gifts, such as that the amount of any gift may not exceed the amount of the Annual Gift Tax Exclusion under federal tax law, or may only be made so long as any such gift does not generate any tax consequence. So, be mindful of these additional requirements before you undertake any gifting. Further, before you make gifts of the father’s assets, be especially sure that he retains sufficient resources to pay for his own expenses, including the expense of long-term care as he ages and becomes more dependent upon others for assistance with daily activities.
Note, also, that there are other acts which are also prohibited, unless the POA expressly authorizes them. They include the following and are set forth in California Probate Code Section 4264:
1) The power to create, modify, revoke, or terminate a trust;
2) The power to designate or change the designation of beneficiaries to receive any             property upon your Dad’s death;
3) The power to make a loan to yourself, as his Attorney-In-Fact.
Note, further, that as his Attorney-Fact you may not, under any circumstances, make, amend or revoke your father’s Will.
Overall, the best plan is to seek the guidance of an attorney familiar with these issues before undertaking significant action under your father’s POA.

Posts By: Gene Osofsky

Q.  What is the difference between a will and a trust? Some of my friends seem to use the terms to mean the same thing?

A. Yes, many people do use the terms interchangeably, but in reality they are quite different, although they often work together to form a complete estate plan.

A will is a document that directs who will receive your property at your death and only goes into effect upon your death and then only in the context of a court proceeding, called a probate.  By contrast, a trust takes effect as soon as you create it and usually does not require court supervision.

A trust is a legal arrangement by which one person, called a “trustee”, holds legal title to property for the benefit of another person (initially, for yourself, and later for your beneficiaries). The initial trustees would typically be you and your spouse, and the successors would typically be the survivor of the two of you, and then your child(ren) in the order you designate. However, you could designate others, such as a trusted friend or a Professional Fiduciary to serve after you.  As initial “trustees”, you and your spouse would continue to control and manage your assets as before, albeit as “trustees” of your own trust.

A trust usually has two types of beneficiaries: you and your spouse during your lifetimes, and your children or other designated beneficiaries after your deaths.

A will only directs the disposition of assets that are in your name when you die.  A trust, on the other hand, typically serves a “dual role”, in that it controls the use and disposition of assets both during your lifetime, as well as upon your demise.  This difference can be very significant if you are, for any reason, unable to manage your financial affairs during your lifetime, due – for example – to declining cognitive ability.

Note:  a trust only administers assets property that have been transferred into the trust, usually by re-titling assets into the names of the trustee(s), such as by a new deed.  Example: Your home might be transferred via a Deed from John & Mary Jones, husband and wife, to John & Mary Jones, Trustees of the Jones Family Trust.

A will typically requires a formal probate proceeding, which is a court proceeding wherein the administration of your estate is overseen by a judge who approves actions taken or proposed by your Executor.  By comparison, a trust administration following the demise of the Trustors is usually handled outside of court, by your designated Successor Trustee, and is typically a less expensive, speedier and private process than probate.

Note:  Neither a will nor a trust control assets held in joint tenancy, insurance policies payable to individual beneficiaries, nor financial accounts designated as “Pay on Death” or “Transfer on Death” Accounts. Those assets go to the surviving joint tenant or to the designated beneficiaries, and are usually not controlled by either a will or a trust.

Typically, trust administration would be handled with the assistance of an attorney, but the legal fees would usually be much less than in a formal probate.

Finally, a will becomes part of the public record and is therefore available for anyone to view, while a trust usually remains private.

Wills and trusts each have their advantages and disadvantages.  For example, a will allows you to name a guardian for minor children and to specify funeral arrangements, while a trust does not.  On the other hand, a trust can be used to plan for disability during your lifetime, for asset management by your successor trustees if doing so becomes too burdensome for you, and can be useful if you need to apply for a Medi-Cal subsidy to help with long term care expenses.

Unfortunately, many people who set up trusts neglect to transfer all of their assets into the trust.  That is where a companion will can help: the companion will, often called a “pour over” will, can direct that assets inadvertently left out of the trust be transferred into the trust in order to achieve a coordinated plan of disposition.

Posts By: Gene Osofsky

Q. My father recently died, leaving his home in a Living Trust. He also left several bank and brokerage accounts. Our problem: these financial accounts were never formally transferred into his trust. Is there a way to deal with them now without going through a full probate?

A. Yes, there may very well be a way! And, by the way, your question suggests that you know that a probate is a court proceeding supervised by a judge. It usually requires the assistance of an attorney, involves lots of paper-work and compliance with procedural rules, and typically takes more than a year to complete even where everything proceeds smoothly. In our experience, most families prefer to avoid a probate proceeding whenever possible.

So, in your situation, there may be two options to settle your father’s estate as to the omitted assets without a full probate:

1) Petition Court to Transfer Assets To Trust: One approach would depend upon whether there is written proof that he intended to make these omitted assets part of his trust, but just never got around to doing it. Example:  he may have listed these accounts in his description of assets appended to his trust, but perhaps never formally re-titled them into the trust. Some judges may even deem it sufficient if his Last Will, which is usually prepared as a companion document to the “Living Trust”, directs the remaining “residue of his estate” to his Trust, as most such companion Wills actually do.

If so, then it might be possible to Petition the Superior Court for an order transferring them into his trust now, so that they can then be handled – like the home—as part of the administration of his trust and without need for a full probate. The judge hearing this petition would likely make a ruling in one short court hearing. This is sometimes called a “Heggstad” Petition, so named because of the leading court case approving this procedure.  However, even this Petition would involve a court proceeding, and require that you engage an attorney to prepare a written petition to the court.  So, at best it would involve what I call a “mini- probate”. On the good side, there is no “cap” on the value of assets that may be subject to this Heggstad Petition.

(2) Affidavit Procedure for Accounts Under $184,500: If your father had only omitted from his trust certain bank and brokerage accounts, and if you discover that their combined value does not exceed $184,500 (in year 2024), then you might proceed via the even simpler “Small Estate Affidavit” procedure.

This affidavit procedure, set out in California Probate Code § 13100, requires only the completion of an affidavit by the Successor(s)-In-Interest of your father, setting out the nature of the assets sought to be collected, the right of the Successor(s) to receive them, and certain other recitals. That affidavit would then be delivered to each bank and brokerage firm holding an account for your father, with the request that it comply with the law and turn over the account funds under each custodian’s control to the signer(s). Some banks even have forms for this purpose.

Here, the successor(s) would typically be the named beneficiaries in your father’s Last Will (if he had one), which could very well be the designated Successor Trustee of his Trust. Alternatively, –if there were no Will – then the successors would be his family members who would inherit his estate under the California law of Intestate Succession, i.e. the law which determines rights of inheritance where someone dies without a will. This law designates family members in a certain order of preference.

Of special note is that the values of certain kinds of assets are excluded from the valuation cap when determining whether this Small Estate Affidavit procedure may be used, sometimes making it easier to qualify to use this Affidavit procedure. Also, note that this value cap is adjusted every 3 years based upon inflation. The next adjustment is due in April, 2025.

So, there are, indeed, options for you to avoid a full probate, and you should discuss these with your attorney.

Posts By: Gene Osofsky

Q: My friends and I were recently discussing our estate plans, and the subject of Powers of Attorney came up. It seems that we have different understandings as to what they look like and how they can be used. Can you provide me with a short lesson which I can share with my friends?

A.  Sure. Powers of attorney are very important legal documents. In their basic structure you (the principal) delegate to someone whom you trust (your agent or “attorney-in-fact”) the power to engage in financial transactions in your name, using your assets and with the same legal effect as if you had signed the transaction documents yourself.  But all powers of attorney (“POA”) are not the same. Here is a short list of some variations:

Is It Durable?  Unless the document expressly so provides, a POA expires when the principal loses mental capacity.  However, this feature may be overcome if the document provides that it is “durable,” meaning that it survives the principal’s incapacity. In almost every case, you will want a power of attorney to recite that it is durable, as that is usually when it is needed most.

Is It a “Springing” Power?  A POA can either be immediately effective, or it can be effective only upon the occurrence of a future event, such as incapacity. If triggered by a future event, we refer to this as a “springing power,” because it does not spring into life until the occurrence of that future event.  Many POA’s are designed to only spring into life when a physician certifies that the principal has lost mental capacity.

Is It Limited Or General in Scope? A POA can either be limited in scope (e.g. authorizing an agent to sign a deed and other documents to close a specific sale escrow) or be limited in time with a fixed expiration date, or it can be very general and comprehensive in nature.

Does It Permit Modification of Trust? If you have complete confidence in your agent, you may wish to authorize your agent to create a “Living Trust” for you and/or to make future modifications to your existing “Living Trust” if you have one. Modifications may be necessary in order to address changes in family circumstances, changes in tax law and/or to engage in public benefits planning on your behalf should you later need long term care.  But in order for these powers to be effective, there must also be reciprocal provisions in your Trust, a legal requirement often overlooked. However, your agent may not make a Will for you.

Does it Permit Gifting and/or Long-Term Care Benefits Planning? By California law, an agent cannot use the principal’s assets to make gifts, unless that power is expressly granted in the POA.  Further, even if this power is expressly granted, the agent cannot make gifts to himself unless the right to “Self-Deal” is also expressly stated.  Sometimes the power to make gifts can be very important, such as for tax planning or planning for government benefits under the Medi-Cal or Veterans Pension programs in order to help with long term care expenses.  Example: sometimes a home transfer to another family member, or to a Living Trust, is necessary to protect the home from Medi-Cal estate recovery following your demise, if you have received Medi-Cal benefits during life.  Unfortunately, we find that very few POA’s contain these important powers or impose limits upon exercise which reduce the planning opportunities available to the agent.

In every case, the POA can only be created when the principal has mental capacity to understand what he or she is signing and all POA’s expire upon the death of the principal.  Lastly, a POA for financial matters cannot authorize health care decisions: for that another document is necessary,  which is usually called an Advance Healthcare Directive.

Posts By: Gene Osofsky

Q.  My husband has become frail, and his doctor says he may need to go into a nursing home. However, neither of us is happy with that plan. I want to keep him home. Is there a program that might help us?

A. Yes. The “Program for All Inclusive Care for the Elderly” (“PACE”) may be just the ticket. The PACE program has been designed to help frail elders live independently as long as possible in their own home, which is exactly what both of you desire. It is designed for those elders who would otherwise be at risk of nursing home placement.   Here’s how it works:  several times each week PACE would pick him up at home in a specially designed van and transport him to a local community health center where he would receive all medical care, rehabilitation therapy, social services, recreation, socialization and hot meals with other seniors. At the end of the day, he would be transported back home to be with you.  It would also provide some in home care services to assist him with his needs at home, and thus help relieve the burden upon you.

To be eligible for the program, one must be at least 55 years of age, have medical problems which require ongoing care, but yet be able to live at home safely (perhaps, with a spouse or other care person to assist), as determined by the evaluation team. The level of care is designed to be comparable to the care received in a nursing facility. The senior must also live in a service area covered by the PACE program and, fortunately, you probably do if you reside in the Bay Area.  Once your husband joins the PACE program, all medical care will be provided by the PACE program, which unfortunately means that he will have to give up his own physicians and, instead, begin seeing the physicians at the PACE facility. However, the good news is that the PACE program provides a team of doctors, nurses, social workers, personal care attendants and dietitians who would be responsible for all of his care, and all of that care would be centralized at the PACE Center and supplemented by in-home and referral services.  In the event your husband needed hospitalization, even expensive surgery, PACE would pay for that without additional cost.

PACE is primarily paid for by Medi-Cal and Medicare, and most participants are covered by one or both programs and have either a modest flat monthly co-pay, or none at all.  The PACE program would also work if one or both of you lived in an Assisted-Living Facility, although it would then only cover medical costs but not room and board.  Also, if one of you needed PACE services and the other did not, the good news is that the Medi-Cal law — which includes provisions designed to avoid Spousal Impoverishment — would help protect household income for the “well spouse”.  PACE enrollment can also work for a single senior, as the in-home services include personal care as well as some housekeeping, shopping, meals, and the like.

To learn more about PACE, contact the Center for Elder’s Independence at 844-319-1150 or visit on line www.cei.elders.org.  To learn more about protecting assets under the Medi-Cal Spousal Impoverishment Laws, contact our office.

 

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Posts By: Gene Osofsky

Q.  My wife and I had our Living Trust prepared back in the year 2001. I hear there have been changes in tax law since then which might affect us. Is it time to have our trust reviewed?

A. Yes, Indeed!. When you created your own trust, the estate tax exemption was much smaller than it is today, and special tax planning was required to minimize estate taxes for a married couple. At that time, your attorney probably recommended a form of trust tailored to the much lower estate tax exemption, which was then $675K per person. He or she likely designed a Trust with a Bypass Sub-Trust built into it. This Bypass Sub-Trust was sometimes called a “B Trust,” an Exemption Trust, a Family Trust, or a Credit Shelter Trust.

This design was to preserve the first spouse’s estate tax exemption for later use at the survivor’s later death.  Under former law, without this design, if all trust assets transferred to the surviving spouse directly, the first spouse’s exemption would be unused and lost and all trust assets at the later survivor’s death could potentially be heavily taxed, as they would be then sheltered by only the survivor’s own $675K exemption.  The excess estate value (if any) was then exposed to an estate tax at a rate as high as 55%. Understandably, couples wished to avoid that tax.

However, by directing a portion of the first spouse’s share into a ByPass Sub-Trust, rather than to the Surviving Spouse directly, the couple could shield from estate tax $675K + $675K, or a total of $1,350,000, over the span of two lifetimes.

Now, the estate tax exemption has increased dramatically, making the former use of ByPass sub-trusts unnecessary for most couples.  By comparison, the former $675K estate tax exemption is now $13.61 Million per person per the Tax Cuts and Jobs Act (“TCJA”), effective for persons dying between 2018 and 2025.  Unless Congress votes to extend that TCJA, which is set to expire in 2026, the estate tax for persons dying in years 2026 and thereafter will likely return to the prior exemption, which was approximately $5,250,000 (plus increases for inflation) under the American Taxpayer Relief Act (“ATRA”) signed by former President Obama. But even if the current law expires in 2026 and the exemption drops back to what it was under the ATRA, even that lower exemption (plus adjustment for inflation) would still be more than sufficient for most couples’ estates, and would eliminate the need for the mandatory ByPass Sub-Trust funding on the first death.

Question: You might ask why couples might now prefer to forgo a ByPass Sub-Trust.  Answer: The typical Bypass Trust had some drawbacks: (1) the survivor typically lost the right to make any changes in the Bypass portion even if family circumstances had changed, (2) the survivor’s access to the assets in the Bypass portion was usually restricted, (3) the Bypass trust could interfere with applying for a Medi-Cal long-term care subsidy, (4) the assets in the Bypass portion usually did not qualify for a 2nd date-of-death “step-up” in tax basis upon the later death of the surviving spouse, with increased exposure to a later capital gains tax for appreciating assets when, and if, the ultimate recipients (usually the children) later opted to sell the appreciating asset(s), and (5) the Bypass Trust usually required separate accounting and annual income tax returns during the life time of the survivor.  Surviving spouses usually found these restrictions burdensome.

Further, under current tax law, the unused portion of the first spouse’s full exemption can now be preserved for use by the second spouse even without the use of the restrictive Bypass Trust. The survivor need only make a proper election to preserve it by filing a timely Estate Tax Return Form 706 after the death of the first spouse.

In view of these new developments, couples with Bypass Trusts created for estate tax purposes under old tax law should have their trusts reviewed and, where appropriate, consider eliminating the mandatory funding feature at the first spouse’s death. Instead, they might now consider plans which give the survivor the option of doing post mortem planning after the first death, e.g. by funding a portion of trust assets into an optional Disclaimer Trust. The Disclaimer Trust would then operate as a tax-saving Bypass Trust if that option then appeared appropriate, whether to ensure full use of the 1st spouse’s exemption (without the need to file a timely Form 706 to so elect) and/or for non-tax reasons (e.g. creditor protection, assuring bequests to the deceased spouse’s designated beneficiaries).

An exception to the above recommendation:  The use of the mandatory Bypass Trust can still be useful for non-tax purposes, e.g. in situations involving second marriages. Here, each spouse usually wishes to provide financial security for the survivor, but also wishes to preserve a portion of assets for his/her own children. Under these circumstances, a Bypass Trust can still help these couples achieve their estate planning goals.

 

Posts By: Gene Osofsky

Q. Our daughter is going through a divorce. She has a 24 year old son (our Grandson) who has a disability and gets both SSI and Medi-Cal. She plans to seek child support from the father. We worry that the child support will reduce our Grandson’s SSI and possibly eliminate his Medi-Cal. Is there a way around this?

A. Yes, indeed! Very few attorneys or judges are familiar with the work-a-round for this concern, which involves the use of a Special Needs Trusts (“SNT”). As a result, the sad fact is that many children with a disability who receive SSI and Medi-Cal see their benefits reduced or eliminated when their parents divorce. A bit of background:

To qualify for Supplemental Security Income (“SSI”), your Grandson with a disability must meet two financial conditions:  He must (a) have less than $2,000 in non-exempt resources in his own name (e.g., savings), and (b) his monthly income must be less than the SSI benefit rate, currently $1,182.94 per month if living independently or $873.87 if living in his mother’s home (in 2024).  An award of SSI also entitles him to Medi-Cal without a co-pay (“share of cost”).

But it gets more complicated in the divorce process.

For an adult child, if he is “incapacitated from earning a living and without sufficient means”, then his parents’ duty to support him continues into adulthood under California law.  However, any court-ordered Child Support (“CS”) that he receives would—unless special arrangements are made as described below — be treated as “unearned income” to him and offset his SSI dollar-for-dollar, reducing or eliminating it entirely.

The question, then, is whether there is a way to preserve both his right to SSI and his right to Child Support.?

Answer:  YES!  Enter the Special Needs Trust (“SNT”).  With professional guidance, your daughter could create a SNT for her adult son and, through her attorney, ask the court to “irrevocably assign” the payment of CS to the SNT.  If structured properly, under SSI rules there would then be no offset to his SSI !  Your Grandson would then receive (1) Full Child Support,  (2) SSI without offset, and (3) Medi-Cal without a Share of Cost.  While this strategy has been available for some time, many judges and attorneys are unfamiliar with it and, until now, some judges are of the view that they cannot order Child Support payable to any kind of trust.

Good news! On June 26, 2024, Governor Newsom signed legislation clarifying the matter.  The new law (AB 2397), was introduced by Assembly Member Maienschein and amends Family Code § 3910.  In relevant part, it provides simply as follows:

“The court may order that a support payment be paid to a special needs trust”

The law becomes effective on January 1, 2025, and will give the courts explicit authority to assign child support for children with disabilities to a SNT so that they do not risk losing their SSI benefits.

The SNT would be managed by a Trustee, which could be your daughter, who would then handle the funds in a manner compliant with the SSI and Medi-Cal rules. This typically would mean that, as Trustee, she would not disburse funds directly to your Grandson, himself, but instead would use them to pay third party providers directly for goods and services provided to him, such as a tutor, computer, clothing, etc.

The use of an SNT may also be used to shelter support for a minor child who receives SSI (although the offset calculations are a bit different), as well as to shelter Spousal Support for a spouse going through divorce.

To make this option work, it is essential that your daughter engage an Elder Law or Special Needs attorney familiar with the use of the SNT in the divorce context. The SNT attorney would then work with her divorce attorney to create the proper SNT, and might even help educate the judge and opposing counsel to the benefits of this technique. In this regard, our firm has developed a special interest in these cases, and the results have been very rewarding and usually recognized as a “win-win” by all parties before the court.

Posts By: Gene Osofsky

Q.  My father recently died. His home, bank accounts and other assets were held in a Living Trust.  His financial advisor said we should now engage a lawyer to help with trust administration. What? I thought if you had a Living Trust that there was little or nothing to do following the death of the trust-maker? Is that not so?

A.  Your father’s financial advisor is correct. One of the most common misconceptions among those who have established a Living Trust is that there is little or nothing to do following the death of the trust-maker. In fact, depending upon the nature of the assets, there is often quite a bit to do.

Think of it this way: many people create Living Trusts in order to avoid a formal probate proceeding, which many people correctly understand to be a cumbersome, time-consuming process overseen by a judge in court. By comparison, administering a trust following death involves many of the same processes, except that it is controlled by a trustee in an out-of-court process called trust administration. Further, a probate is a public proceeding, while administering a trust is typically a private matter. Still, even with trust administration there are things to do and laws to follow.

While everyone’s situation is different, here is a partial list of things that should to be done during a typical trust administration:

Prepare formal, written Notice to Trust beneficiaries and heirs in legal format;
Identify and protect decedent’s assets;
Lodge decedent’s Will with the Court;
Give formal notice to agencies: Medi-Cal, FTB, IRS, Social Security; VA
Prepare a trust accounting, if required by the terms of the trust;
Obtain appraisals for tax purposes and for distribution purposes;
Ascertain and pay creditors;
Advise Beneficiaries about any “Disclaimer” option;
Resolve disputes among beneficiaries;
Take title to real property in the trustee’s name;
Sell real property where appropriate & distribute the proceeds;
Handle sub-trust funding if required by the trust;
File fiduciary income tax returns, if required;
File estate tax returns for larger estates or to elect / preserve tax portability
Arrange care for pets

Sometimes there are problems with a trust which  need to be corrected by seeking an appropriate court order. One example would be a trust prepared years ago, when tax laws were different, which should now be revised to comport with new tax law.  Another example: where a trust leaves assets to a beneficiary who is now disabled and receives public benefits (such as SSI and/or Medi-Cal), and whose bequest should, instead,  now go into a Special Needs Trust for his benefit so as not to disturb the continuation of those benefits. Where these issues appear, the trustee must also consider whether to seek a post-mortem trust modification via a Court Proceeding, or via the newer out-of-court Decanting Process.

While the rules regarding trust administration are generally more relaxed than those governing a probate proceeding, nevertheless it is wise for the successor trustee to consult with an attorney knowledgeable in these matters, so that he or she can be properly advised and avoid tripping over legal requirements. Remember: the successor trustee typically has a fiduciary duty to honor the terms of the trust, comply with relevant law, and deal fairly with the designated beneficiaries.

We recommend that all successor trustees seek appropriate legal guidance so that they discharge their duties lawfully, minimize family disputes and avoid creating liability for themselves.