You may already know that special needs trusts are available for you to provide financially for a disabled loved one in California, both now and after your death. You may also know that special needs trusts allow you to provide funds for a disabled family member for life-enhancing expenses, such as entertainment, travel or pet care, without affecting his or her eligibility for government assistance programs. However, you may not understand the different types of special needs trusts available or how to decide which will be the best fit in your particular family situation.
According to Forbes, the most common solution for parents of a child with a disability is a third-party special needs trust. It is so called because when you create it, you name a third party, perhaps a family member or trusted friend, to act as a trustee. These trusts are popular because they allow you to provide for a disabled family member without raising his or her income level to the point where he or she no longer qualifies for assistance such as SSI or Medicaid.
Another option is a pooled asset trust. Instead of creating a new trust in which a disabled family member is the only beneficiary, this option allows you to contribute to an existing shared trust with multiple beneficiaries, often administered by a nonprofit organization. The amount that you contribute determines what size share of the funds your loved one may receive. Trust administrators then combine the assets, invest them and pay out shares of the profits to each beneficiary in proportion to share size.
There are also first-party, or self-settled, trusts. One of the main differences between first-party and third-party trusts is that, when you form the latter, you can name additional beneficiaries to receive assets following the death of the beneficiary, but in a self-settled trust, that money must go to reimburse the state for any Medicare benefits the disabled party received in life. Situations in which a first-party trust may be appropriate include those in which your disabled loved one receives a court-ordered settlement or a direct inheritance.
The information in this article is not intended as legal advice but provided for educational purposes only.