Sometimes clients want to leave a gift to a beneficiary who is receiving government benefits (e.g., Medi-Cal). However, leaving a gift outright to that person might jeopardize the ability to continue receiving those benefits.

Incorporating "special needs" provisions in your estate planning documents can help a beneficiary preserve his or her ability to continue receiving government assistance by providing that the gift to the beneficiary will be held in a special trust and only be used for that person's "supplemental" needs such as travel, entertainment, and special medical care that are not covered by the government. 

A special needs trust created by a person other than someone who is receiving public benefits is not subject to Medicaid liens. Where there's a concern that leaving a substantial bequest to an individual may cause forfeiture of benefits, one should strongly consider incorporating provisions to create a special needs trust.

Estate planning tends to be heavily focused on the care of loved ones. One difficulty you or someone you know may face is figuring out how to leave behind assets to care for someone who is mentally impaired or disabled to a degree that he or she cannot function independently. Some of the same considerations involved in leaving assets to a minor child are also relevant here.

Trusts

Any gifts that you make or assets you leave behind for an incapacitated person who cannot manage his or her affairs, would ideally be in the form of a trust. The Trustee of the trust can then manage those assets in a way that will be effective for the beneficiary. The Trustee can also make distributions for the benefit of the beneficiary in a way that will enhance the beneficiary's lifestyle. Frankly, the beneficiary may not even understand or be capable of comprehending the existence or nature of the trust.

Special Needs Trust

One concern that crops up for certain disabled beneficiaries is the potential loss of public benefits they may be receiving. If the beneficiary is receiving public benefits or government assistance, it's possible that your gift to them in the form of a trust or otherwise may jeopardize the beneficiary's eligibility for the public benefits and government assistance. In this scenario, it may be prudent to establish a "special needs trust" that limits how the trust assets are used so as not to cause the beneficiary to forfeit his public benefits.

Deciding the best way to leave assets to an incapacitated person can be difficult. It may depend on their level of disability, the value of the assets that you wish to give to them, or whether or not they are receiving government assistance. Having an estate planning lawyer explain the possible consequences and pros/cons of the different approaches could help you ensure that you are doing what is in the best interest of the beneficiary.