When a child has a significant disability, parents often spend a great deal of their time attending to their needs and ensuring that they have the best available care and treatment. These efforts often include taking their child to and from various medical appointments and arranging for all of their necessary supportive services and equipment. Although parents need to focus on their child’s immediate needs, it’s also essential that they plan for their future. One way that parents can prepare for their disabled child’s future requirements is by using a special needs trust. This crucial device can be an invaluable resource. If you are a parent in this position, you will want to know: Does my disabled child need a special needs trust?
What is a Special Needs Trust?
A special needs trust is a unique device that can be used to benefit a person with a disability. In order to have a special needs trust, the beneficiary must have a qualifying disability. Additionally, special needs trust disbursements can only be made for specific costs. Essentially, these payments can be made for things that improve the beneficiary’s quality of life. However, there are limitations on how trust disbursements may be used.
Special Needs Trust and SSI and Medi-Cal
When a person has a significant disability, they often depend on benefits from government programs such as Social Security Income (SSI) and Medi-CAL (California Medicaid). With SSI, the individual typically receives a small sum that can be used for their support. Medi-CAL is the program that pays for the recipient’s medical treatment and care. Both programs can be essential resources for someone with a disability. SSI and Medi-CAL are also income-sensitive, meaning that if a recipient earns or receives too much money or property, they may become disqualified from receiving some or all of their program benefits. However, when a beneficiary receives disbursements from a special needs trust, they do not count as “income” for purposes of SSI and Medi-CAL.
How is a Special Needs Trust Created?
Special needs trusts can either be created with assets that belong to the trust beneficiary or with those that belong to someone else. If the trust is funded with the disabled individual’s assets, it’s called a first-party trust. When someone other than the beneficiary sets up and funds the trust, it is referred to as a third-party trust.
First-Party Special Needs Trusts
- First-party special needs trusts are created when the trust beneficiary owns or is owed the trust assets before they are transferred into the device. Often the first-party special needs trust funding sources will include things like insurance policy proceeds, inheritances, or lawsuit settlement payments.
Third-Party Special Needs Trusts
- Third-party special needs trusts are created by someone other than the disabled beneficiary. Family members and other loved ones typically create these types of trusts. These individuals can contribute to their loved one’s trust throughout the beneficiary’s life. Parents also usually want to leave funds and assets for their children after they are gone. By directing their estate assets or insurance proceeds to a special needs trust, they can provide for their disabled child’s needs. Other loved ones such as grandparents, aunts, uncles, and other family members and friends can also direct assets and bequests into the special needs trust.
An important distinction between a first-party and third-party special needs trust is what happens when the trust beneficiary dies. With a first-party trust, the state may claim special needs trust assets to repay the Medi-CAL program. By contrast, third-party trust assets do not revert to the state when the beneficiary passes away.
A special needs trust will have a trustee appointed to manage the trust assets and disburse payments for the beneficiary’s care and services. The special needs trust trustee will have responsibilities and duties to maintain and safeguard the trust assets. The trustee should have a thorough understanding of the beneficiary’s needs and any programs the beneficiary relies upon for support.
What are the Limitations of a Special Needs Trust?
Special needs trusts do not have contribution limits, and anyone can contribute to them. However, there are specific rules and limitations regarding special needs trust payments. Special needs trusts are designed to provide funds to pay for expenses that make the beneficiary’s life more comfortable. One of the main things to know is that the beneficiary cannot use trust payments for food or shelter. However, special needs trust payments can be used to pay for multiple expenses related to making the beneficiary more comfortable. Some allowable expenses include travel, furniture, education, clothing, recreational needs, pet supplies, computer equipment, and transportation.
A special needs trust can be an invaluable source of support for your disabled child. However, to be effective, the device must be created and managed properly. Further, when you are planning for your child, a special needs trust will be part of your overall comprehensive estate plan. By working with an experienced special needs planning attorney, you can help ensure that your child will have what they need today and in the future.
At the Law Offices of Alice A. Salvo, we are California special needs planning attorneys with the experience you need to help you plan for your child’s future. We can help you evaluate your circumstances and determine the best solutions for your family. Please get in touch with us online or by phone to schedule an appointment today. https://www.salvolaw.com/contact/