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, who is on Medi-Cal and Supplemental Security Income. 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? -- Ben

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.

For a special needs trust to work, your sister’s inheritance comes with strings attached. The trust includes provisions ensuring that the assets of the trust are not considered as resources available to pay for your sister’s care. For the most part, the trustee has no discretion to give food, clothing, shelter or cash to your sister if such distributions would cause her to lose her benefits. If you had the discretion to give your sister whatever you felt necessary, without restrictions, she would lose her Medi-Cal and SSI.

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 after your sister’s death. If you gave the home outright to your sister, the rights of these beneficiaries would be affected, and they could sue you 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 and Medi-Cal nursing home benefits paid at any 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 pays no rent, the amount of SSI she receives each month may be reduced, but there will be no reduction in 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 Tillem and Rosie McNichol are elder law attorneys. Contact them at 846 Broadway, Sonoma, CA 95476, at 996-4505, or www.lentillem.com. Len also answers legal questions each weekday, noon to 1 p.m., and Sundays, 4-7 p.m., on KGO Radio 810 AM.