Do I Need a Special Needs Trust?

TL;DR (Summary): A Special Needs Trust is a vital tool for California parents of special needs children, allowing them to provide financial support without jeopardizing government benefits like SSI or Medicaid. This estate planning option ensures that your loved ones receive the care and resources they need while maintaining their eligibility for essential benefits.

For couples with children or family members who have special needs, thoughtful estate planning is especially crucial. One common estate planning question we hear from these families is, “Do I need a Special Needs Trust?” In this blog post, we’ll explore everything you need to know about Special Needs Trusts (SNTs), including their benefits, how they work, and whether they should be part of your estate plan. 

What is a Special Needs Trust?

A Special Needs Trust (SNT) is a legal arrangement that allows a person to set aside funds for a loved one with special needs while ensuring that those funds will not interfere with the recipient’s eligibility for government benefits, like Supplemental Security Income (SSI) or Medicaid.

The Purpose of a Special Needs Trust

The primary purpose of an SNT is to provide financial support to a person with special needs without jeopardizing their ability to receive public benefits. These benefits, which can cover essential living costs like medical care, housing, and daily expenses, typically have strict income and asset limits. If someone with special needs receives too much in financial support, they may lose access to these critical benefits.

An SNT allows a loved one to receive financial support while still qualifying for government assistance. The trust funds can be used for a wide range of purposes, such as:

• Food and shelter
• Medical expenses not covered by insurance
• Personal care and comfort items (e.g., a wheelchair, therapy, home modifications)
• Educational needs (e.g., tutoring, specialized equipment)
• Vacations or recreational activities that enrich life experiences
  

In short, an SNT is designed to enhance the quality of life for individuals with special needs without compromising their essential public benefits.

Do You Need a Special Needs Trust?

As a California parent, you may be wondering if a Special Needs Trust is necessary for your estate planning. While every family’s situation is unique, here are several scenarios in which an SNT could be the right choice for you:

1. You Have a Child with Special Needs

If you have a child or dependent with special needs, an SNT can help ensure they are well taken care of after your passing. Even if your child is an adult, they may still rely on government assistance for their daily needs and medical care. Without a Special Needs Trust, any inheritance they receive could disqualify them from these critical benefits.

In California, the cost of living can be high, and for a person with a disability, the financial burden may be even more overwhelming. A Special Needs Trust offers a way to provide for your child without risking their access to government assistance.

2. You Want to Protect Your Loved One’s Future

Many families worry about the future care of a loved one with special needs, particularly if they have no other family members who can provide ongoing support. A Special Needs Trust allows you to designate a trusted individual (often a family member or professional fiduciary) to manage the funds for the benefit of your loved one. This ensures they will have financial resources for their care, even if you are no longer around to provide for them yourself.

3. You Have Family Members Who Are at Risk of Losing Benefits

Even if your loved one is not currently receiving government benefits, they may be eligible for SSI or Medicaid in the future. If you leave an inheritance to them directly, it could disqualify them from receiving these benefits. A Special Needs Trust protects the individual from losing these benefits while providing financial assistance for their well-being.

4. You Want Peace of Mind

Planning for the future of a loved one with special needs can be overwhelming. A Special Needs Trust offers peace of mind, knowing that you have taken steps to ensure your loved one’s future is secure, both financially and emotionally. With the right planning, you can rest easy knowing they will continue to receive the support they need, no matter what the future holds.

How Does a Special Needs Trust Work?

A Special Needs Trust works by having a trustee manage and distribute the funds in accordance with your wishes. The trustee is the person or institution responsible for ensuring the funds are used in a way that benefits the individual with special needs, while still adhering to the restrictions set by government benefit programs.

There are two types of Special Needs Trusts:

1. First-Party Special Needs Trust

This type of trust is funded with assets that belong to the individual with special needs. For example, if the individual receives a settlement from a lawsuit or an inheritance, this trust allows them to keep those funds while still qualifying for government benefits. The trustee will manage the funds, using them for the benefit of the individual, and any remaining funds are typically used to reimburse Medicaid after the individual’s passing. Most first-party SNTs are irrevocable, meaning they cannot be easily changed or altered once created.

2. Third-Party Special Needs Trust

A third-party SNT is funded by someone other than the beneficiary, usually a parent, grandparent, or other family member. For example, you could establish a third-party trust for your child with special needs as part of your estate plan. Third-party special needs trusts may be revocable or irrevocable, although most are irrevocable. 

The funds in this trust are not considered the beneficiary’s own assets, so they do not count against their eligibility for government benefits. When the beneficiary passes away, any remaining funds typically go to the beneficiaries you designate (e.g., other children or charities).

Key Benefits of a Special Needs Trust

Some of the top benefits of a special needs trust are:

• Preserves Eligibility for Government Benefits: The most significant benefit of an SNT is that it allows a person with special needs to receive financial support without losing access to government benefits like SSI or Medicaid.
• Provides Financial Support: A Special Needs Trust allows you to set aside money for your loved one’s care, medical expenses, and comfort without jeopardizing their eligibility for benefits.
• Ensures Proper Care: By naming a trustee, you can ensure that the funds are used for the proper care of your loved one, helping them live as independently and comfortably as possible.
• Flexibility: SNTs are flexible. You can tailor the trust to suit the specific needs and preferences of your loved one, allowing for a more personalized approach to their care.
• Peace of Mind: Knowing that you have put a plan in place to care for your loved one with special needs can provide you with peace of mind, especially as you age.
  

Things to Consider When Setting Up a Special Needs Trust

Before setting up a Special Needs Trust, there are a few things to consider:

• Choosing a Trustee: The trustee will have significant control over the trust assets, so it’s essential to choose someone trustworthy, responsible, and capable of managing the funds. Some families choose a professional fiduciary, while others select a family member.
• Funding the Trust: You can fund a Special Needs Trust with a variety of assets, including money, property, and life insurance proceeds. However, it’s essential to work with an experienced special needs attorney to ensure that the trust is set up correctly to preserve eligibility for benefits.
• State-Specific Laws: Estate planning laws vary by state, and California has specific regulations governing Special Needs Trusts. Make sure to consult an estate planning attorney who understands California’s laws and can help you set up a trust that meets your family’s needs.
• Medicaid/Medi-Cal Payback: In some cases, the government may require the trust to repay Medicaid or Medi-Cal benefits after the beneficiary passes away. A lawyer can explain how this works and help you plan accordingly.
  

Should You Consider a Special Needs Trust?

If you have a loved one with special needs, consider establishing a Special Needs Trust for peace of mind, financial security, and a clear plan for the future. At Goff Legal, we specialize in helping families like yours create comprehensive, customized estate plans that protect your loved ones and ensure their needs are met. 

If you’re wondering, “Do I need a Special Needs Trust?” or would like to discuss whether an SNT is right for you, schedule a free discovery call today to get started.

FAQ’s:

1. What is the difference between a First-Party and a Third-Party Special Needs Trust?
   A First-Party Special Needs Trust is funded with assets that belong to the individual with special needs, such as a settlement or inheritance, while a Third-Party Special Needs Trust is funded by someone other than the beneficiary (like a parent or family member). The primary difference is who funds the trust, and how the remaining funds are handled after the beneficiary passes away.
2. Can a Special Needs Trust be used for any expenses?
   No, a Special Needs Trust cannot be used for basic living expenses that are already covered by government benefits, such as food, shelter, or medical care. However, it can be used for other needs like personal care, medical treatments not covered by Medicaid, educational expenses, or quality-of-life improvements like vacations or specialized equipment.
3. Do Special Needs Trusts affect eligibility for government benefits like Medicaid and SSI?
   No, properly established Special Needs Trusts do not count as assets for government benefits like Medicaid and Supplemental Security Income (SSI). This allows the beneficiary to maintain eligibility for these benefits while still receiving financial support from the trust.
4. Can I be the trustee of a Special Needs Trust for my child with special needs?
   Yes, you can be the trustee of the trust, but it’s important to ensure that the trustee is able to manage the funds responsibly and in accordance with the rules of the government programs. Many people choose to appoint a professional fiduciary to ensure the trust is managed appropriately.
5. How do I set up a Special Needs Trust for my loved one?
   To set up a Special Needs Trust, you will need to work with an experienced estate planning attorney who understands California’s laws and regulations regarding special needs. The attorney can help you draft the trust, choose a trustee, and ensure the trust is funded correctly to preserve eligibility for government benefits.
   

   Written by Goff Legal, PC

   Goff Legal, PC is a woman-owned boutique California law firm dedicated to guiding clients through the complexities of Estate Planning, Trust Administration, and Probate. Led by attorney Alexandria “Ali” Goff, we provide personalized legal services designed to protect families, preserve legacies, and bring peace of mind.