The basic concept of a trust is very versatile and can be adapted to accomplish a number of goals. One of the most useful forms of trust for California residents is the special needs trust, which is designed to provide for the supplemental needs of a disabled person while maintaining their eligibility for needs-based government assistance programs.
A special needs trust, sometimes called a supplemental needs trust, holds financial assets on behalf of a disabled person. Because the trust and not the disabled person actually owns the assets, the assets are not counted for purposes of determining eligibility for programs such as Medi-Cal and Supplemental Security Income. Assets in a special needs trust can be used for supplemental expenses such as an automobile, a computer, a phone and medical expenses not covered by Medi-Cal or SSI. Basic expenses like food, rent and general medical care should be covered by SSI or Medi-Cal and should not be paid for out of trust assets.
There are two basic types of special needs trusts: first party and third party. A first-party special needs trust is funded with assets belonging to the disabled individual. First-party special needs trusts are often funded with an inheritance or the proceeds from a personal injury settlement. The trust can only be set up when the beneficiary is under age 65.
A third-party special needs trust is funded with assets from sources other than the disabled individual, typically family members. A third-party special needs trust can be set up during the lifetime of the trust grantor, or as a testamentary trust in a will. Parents of a disabled child often set up a special needs trust to provide for the child after their death. In this way the child will not immediately lose eligibility for public assistance programs when they receive their inheritance from their parents.
Special needs trusts must be carefully drafted to maintain the beneficiary’s eligibility for needs-based benefits. An experienced estate planning lawyer can provide assistance to a family interested in setting up such a trust.
Source: Special Needs Alliance, “Frequently Asked Questions,” accessed June 13, 2015