First party special needs trusts

On Behalf of | May 28, 2020 | Estate Planning |

Often, parents of a child with special needs worry about their child’s ability to qualify for assistance. Not everyone with special needs is a child, though. Sometimes, adults with disabilities want to set up a special needs trust with themselves as the beneficiaries so that they can qualify for government assistance. For example, a person who suffers a catastrophic injury in a car accident may want to set up a trust and fund it with the insurance settlement or court judgment.

Fortunately, the Special Needs Trust Fairness Act allows people to do just that.

The background

Before this legislation, only parents, guardians, grandparents or the court could create special needs trusts. As a result, people often had to apply to the court, which caused delays and came with expenses, or else seek a family member to take care of the paperwork on their behalf.

The requirements

Only people between the ages of 18 and 64 may set up a first party special needs trust. As with any estate planning tools, the person must be mentally competent. For a will, this means people need to be able to understand what they are doing, what they own and who the will affects through inclusions and exclusions. The measure for testamentary capacity is greater for trusts because these contracts are more complex.

People who set up trusts must be able to communicate either verbally or by other means, and must understand how the trust affects their rights and responsibilities, and any duties the trust imparts to them. They must understand the likely consequences of creating the trust, and what risks, alternatives and benefits come from creating it.

The payback

Because the assets in the trust allow the person to qualify for government assistance, when the beneficiary dies, the money in the trust must go back to the state. The California Department of Health Care Services may recover up to the amount that covers the assistance the beneficiary received from Medi-Cal.


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