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Elderlaw: 02/15/2013

Elderlaw Advocates

Dear Len & Rosie,

I am the trustee of my recently deceased mother’s trust, which includes a Special Needs Trust for my disabled sister, Judith. Both before and after our mother’s death, my sister has rented a property owned by the trust. As trustee, can I pay off the mortgage on this property and turn it over to my sister while staying in compliance with the terms of the trust?

I am particularly concerned about the following passage in the trust “For the purpose of determining Judith’s eligibility for any public benefits, no part of the principal or undistributed income of the trust estate shall be considered available to her.”


Dear Ben,

The Special Needs Trust is a means by which your mother can provide for the care and support of your sister without causing her to lose Medi-Cal, Supplemental Security Income (SSI) or other public benefits. Both Medi-Cal and SSI are “needs-based” programs. Your sister cannot keep her benefits if she has more than $2,000 of non-exempt assets. That’s why the Special Needs Trust contains the provision you quoted in your letter.

For a Special Needs Trust to work, there are other restrictions as well. For the most part, as trustee you have no discretion to give food, shelter or cash to your sister if such distributions would cause her to lose her benefits.

Without reviewing your trust in detail, we cannot give you a complete answer to your question. But in general, it is not a good idea to distribute the home outright to your sister. First of all, the Special Needs Trust probably has beneficiaries who are supposed to inherit what’s left of the Special Needs Trust after your sister’s death. If you give the home outright to your sister, the rights of these beneficiaries could be affected, and you could get sued for failing to protect their inheritance.

Also, if your sister dies owning the home, it will be subject to Medi-Cal estate recovery claims after her death, for any benefits paid on behalf of your sister after her 55th birthday, as well as Medi-Cal nursing home benefits regardless of her age. But if the home is held for your sister’s benefit in the trust, it will avoid Medi-Cal estate claims.

What you should consider doing is to pay off the mortgage and allocate the home into your sister’s share of the trust. As trustee, you can hold the home for your sister’s benefit, allowing her to continue to live there. If she does not pay rent, the amount of SSI she receives each month will be reduced because providing her with a free place to live counts as in-kind support, but there will be no loss of her Medi-Cal benefits. The most important thing for you to do is to review your mother’s trust with an elder law attorney and figure out the best way of setting up your sister’s Special Needs Trust to ensure that she is well provided for in accordance with your mother’s wishes.

Len & Rosie

Dear Len & Rosie,

In 1993 my late husband and I went to an attorney and requested a Family Trust be drawn up for our family. My husband and I owned stock in a large corporation, and in 1993 the stock was retitled in the name of my husband and me as trustees of our family trust.

A few weeks ago I called the corporation to change my address and notified them that my husband is deceased. I asked them to remove his name from the stock certificate. They said they would send me a form to fill out and have my signature “medallion guaranteed,” and that I had to send the form, along with a certified copy of my husband’s death certificate, back to them. They also said I had to send the stock registered mail, insured at two percent of the stock’s value. My question is why? We had the trust drawn up to cover all of this.


Dear Mary,

You have fallen victim to “The Living Trust Myth.” You would be surprised how many others find themselves in the same situation. Many people believe that if they have a living trust drawn up, there will be no work to do when they die. This is simply not true.

After the death of one or both of the trustees, there is much to do. At the very least, title to all trust assets must be changed to remove your husband’s name as trustee. The corporation wants you to fill out their paperwork and get a medallion signature guarantee (available at your bank) because that’s what they always require to transfer stock certificates. You and your husband had to do the same thing when you put the stock into the trust. A broker can fill out all of the paperwork for you if you need help.

But there’s other paperwork, too. You should record your husband’s death certificate with an affidavit of death of trustee to remove his name from the deed to your home. And there’s property tax paperwork that has to be submitted with the deed so you can avoid a property tax reassessment under Proposition 13. Most people do not know how to prepare these documents.

You should have your home and all of your securities appraised to establish a new cost basis so you’ll know how much capital gains tax you may have to pay should you sell your home or your corporate stock. Your trust may also be an A/B trust that requires a split between a survivor’s trust and a decedent’s trust on the death of the first spouse. If so, it is essential that you get everything appraised, prepare an accounting, and fund the B trust to help shelter your assets from federal estate tax upon your death.

A trust cannot relieve you of all of the administrative duties associated with the death of your spouse. This is why most people retain an attorney to help them with trust administration. This should not turn you off on the idea of having a trust. The real advantages of a trust is that it saves time and money. Assets held in a trust do not have to go through probate, which can take as long as nine to 15 months to complete if you are lucky, and attorney probate fees are always more expensive than fees for trust administration.

Len & Rosie

Len Tillem and Rosie McNichol are elder law attorneys. Contact them at 846 Broadway, Sonoma, CA 95476, by phone at 996-4505, or on the Internet at Len also answers legal questions each weekday, 3-4 p.m., on KKSF Newstalk 910 AM.

Len Tillem and Rosie McNichol are elder law attorneys. Contact them at 846 Broadway, Sonoma, CA 95476, by phone at (707) 996-4505, or on the Internet at Len also answers legal questions each weekday, Noon-1 p.m. and Sundays, 4-7 p.m. on KGO Radio 810 AM.

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