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Supplemental Trust And Special Needs Planning

12/22/2022 | Special Needs Trust
Supplemental Trust And Special Needs Planning

Parents and loved ones of someone with a disability can be faced with many challenges as they plan for the future. This situation can be especially difficult when resources are limited, and the person is unable to support themselves. While your loved one may qualify for government programs to help pay for his or her care, there are eligibility requirements which severely limit the recipient’s amount of personal wealth and income. Fortunately, with careful planning, there are steps you can take to help provide for your loved one’s future without endangering their ability to qualify for public benefits.

Supplemental v. Special Needs Trust

You may have heard of the terms “supplemental trust” and “special needs trust” before and wondered what they mean. They actually refer to the same type of legal device. The “supplemental” reference is describing what the trust does-supplement government benefit programs such as Medi-Cal (California Medicaid), Social Security Income (SSI), and Social Security Disability Insurance (SSDI), and Medicare. The “special needs” reference is about its purpose-to pay for the recipient’s individual’s extra expenses which they may not be able to afford.

What is a Special Needs Trust?

A special needs trust is a type of trust which is created to provide funds for the care and maintenance of a person with certain types of disabilities. The trust is set up in a manner which allows the beneficiary to receive funds without endangering his or her eligibility for vital governmental assistance programs. When creating a special needs trust, it is important to include language regarding the trust’s purpose, and there are rules about what the trust payments can be used to purchase. The trust will be managed by a named trustee who will be responsible for making payments from the trust for the benefit of the beneficiary. While some of the beneficiary’s expenses may be due to his or her disability, they may also be for ordinary expenditures such as concert tickets or a gym membership.

Types of Special Needs Trust

First Party

· A first-party special needs trust is funded with the beneficiary’s assets or those which he or she is legally entitled to receive. For example, if a child inherited their parent’s estate, the funds of the estate could be placed into a special needs trust for them. These trusts must be created according to certain federal provisions which require that the State be provided with notice and paid back for benefits if the beneficiary dies or the trust is terminated. In California, the Department of Health Care Services (DHCS) must recover up to half of the amount equal to the medical assistance paid by Medi-Cal on the trust beneficiary’s behalf.

Third Party

· The other type of special needs trust is referred to as a “third-party trust.” A third-party special needs trust is funded with assets belonging to persons other than the trust beneficiary, and which the beneficiary never had possession or legal interest in. An example of a third-party trust would be one funded by parents of an adult child with a disability. Unlike a first-party trust, a third-party trust will not be subject to DHCS recovery upon the beneficiary’s death or if the trust were to end.

Pooled Special Needs Trust

· A pooled special needs trust combines assets which are owned by different people into one large fund. The trust will continue to have separate owners and can be first-party or third-party funded. A pooled trust is created through a non-profit organization who will be in charge of its administration. Anyone can create this type of trust.

If you are a loved one of a child with a disability, a special needs trust can be a valuable tool in planning for his or her future care. When carefully and properly drafted this kind of trust can supplement governmental program benefits and ensure your loved one has a better quality of life.

Determining how California special needs trust work can be challenging. At the Law Offices of Alice A. Salvo, we have the experience you need to plan for your loved one’s present and future care. Please contact us online or by phone to set up a free consultation today and we can discuss the best special needs plan for your family member.