If you are the parent of a child or have a loved one with a significant disability, planning for their future expenses is essential. One way to provide for a disabled person’s needs is through a special needs trust. This unique device can be a critical source of financial support for someone with limited means. So, do I need to set up a special needs trust?
What is a Special Needs Trust?
A special needs trust is a trust that can be used to pay for certain expenses incurred by someone with a qualifying disability. For instance, trust disbursements can be made for costs related to the beneficiary’s entertainment, education, massage therapy, travel, education, computers, home furnishings, and transportation.
How do Special Needs Trusts Work?
Often individuals with severe disabilities rely on income-sensitive benefits like Social Security Income (SSI) and California Medicaid (Medi-Cal). When the recipient earns or receives too much money, they can be disqualified from receiving these critical benefits. Special needs trusts don’t count as income to the beneficiary as long as the beneficiary uses the funds for an approved purpose and cannot access or control the trust assets.
Special needs trusts don’t have contribution limits, and anyone can place funds or assets in them. Often friends and family members begin adding to a special needs trust early in a beneficiary’s life. Loved ones can also direct assets into a trust through their estate plans.
If the trust beneficiary sets up the special needs trust with their own money or funds that they are entitled to receive, the trust is considered a "first-party trust." However, when the trust beneficiary of a first-party special needs trust dies, whatever is left in the trust can be claimed by the state to repay the Medi-CAL program. By contrast, "a third-party trust" is created by someone else with funds that do not belong to the beneficiary. Unlike a first-party trust, when the beneficiary of a third-party trust passes away, the assets will not revert to the state.
As with other trusts, a trustee will be appointed to manage and oversee the special needs trust and make disbursements to the beneficiary. The trustee will have duties and responsibilities to maintain the trust for the benefit of the beneficiary. It’s essential to choose a trustee that understands the nature of the beneficiary’s condition and the requirements of the benefit programs upon which they rely.
Who Needs a Special Needs Trust?
A special needs trust can be an essential resource for someone with a disability. When an individual relies on SSI and Medi-Cal, they often have their basic needs covered but little else. Special needs trusts provide a way for someone with a disability to pay for goods and services that will make their life more comfortable. Additionally, parents and loved ones often want to plan for their estates so their assets can pay for the individual’s future care needs. However, if a disabled person were to inherit directly, inherited assets would be considered in assessing government benefit eligibility. By using a special needs trusts, parents and loved ones can pass their estates on in a way that will not disqualify the individual from receiving critical benefits.
The best way to determine if your child or loved one needs a special needs trust is by evaluating your circumstances with a California special needs planning attorney. You and your attorney can discuss your loved one’s needs and identify the right tools and resources to prepare for the future.
Contact a California Special Needs Planning Attorney
At the Law Offices of Alice A. Salvo, we are experienced California special needs planning attorneys who can help you evaluate your situation and determine if a special needs trust may be right for your circumstances. Contact us today to schedule your free consultation.