Huntington Beach, California Attorney, Mark W. Bidwell

Special Needs Trust for the Elderly

Social Security Income and Medicaid are for the needy. The concept behind a special needs trust for the elderly is to meet the no asset requirement to receive public benefits by "spending down" or transferring assets out of the elder’s control. A basic moral question to ask is "should a person who can afford medical care receive medical care intended for the poor." If the answer is no, then a special needs trust should be avoided.

Putting aside the morality issue. Just how practical is such a trust. Assets must be transferred out of the elder’s control. Who can be trusted with those assets. What are the gift tax implications in a transfer.

Specifically how does one transfer retirement accounts. A change in control of a retirement account is a taxable event and taxed at the prevailing income tax rates. An elder is allowed to retain retirement assets as they are not assets counted to qualify. But the income will flow to the elder and dollar for dollar reduce the public benefits. The elder will also receive social security income with more reduction of public benefits.

Finally what are we trying to accomplish here. Mainly it is to have the State of California pay for the cost of residing at a skilled nursing facility. As a rule, most people stay at nursing home for about two years. The sad fact is people just do not live that long after entering a nursing home. Assume the cost of respectable home is $10,000 per month. The savings is $240,000.

Nursing homes paid for by the State are not upscale operations. They are bare-bones minimum arrangements to meet the most basic of needs. This is while the children enjoy the assets of their elderly parent.

An elder’s quality of life is not improved with this type of living condition. Special needs trust for the elderly just do not make sense due to loss of control, limited benefit and public policy.

Key Issues:

• Is it needed as a matter of public policy?
• The practicality of transferring assets
• Does it improve the quality of life of the elderly?