Understanding A Special Needs Trust

Fortunately, government programs like Supplemental Security Income (SSI) and Medi-Cal exist to provide basic needs for people with disabilities. However, if you are not careful, an individual with special needs may lose these benefits if they receive an inheritance or other financial windfall.

A special needs trust can help protect your loved one so that they do not lose their benefits and can still benefit from additional assets. However, these are very complex trusts, and any minor mistake can result in the trust property being accessible to your loved one, therefore causing them to lose their benefits.

If you are considering a special needs trust for you or a loved one, consider contacting an experienced estate planning lawyer from Von Rock Law for help. We can discuss the matter confidentially with you during an initial consultation you can arrange by calling (866) 720-0195.


What Is a Special Needs Trust?

A special needs trust is a trust that is designed for beneficiaries with disabilities. Many government benefit programs like SSI, HUD housing assistance, Medi-Cal, and In-Home Support Services provide basic needs for individuals with disabilities. However, these programs often have strict rules regarding a claimant’s assets. For example, SSI, Medi-Cal, and In-Home Support Services have an asset limit of $2,000 for an individual. If the claimant has assets above the program limit, they can lose these benefits. In some cases, a claimant who rejects these funds can lose their benefits.

A special needs trust is recognized by state and federal government agencies as a valid way to provide additional resources to help a person with a disability without jeopardizing their benefits. Because the claimant does not have control of the trust or distributions, the assets contained in the trust are not considered to be owned by the claimant. If the special needs trust is carefully drafted, your loved one’s government benefits can be preserved, and your loved one can have a more fulfilling life due to the extra assets that can benefit them.  

How Does Money from a Special Needs Trust Affect SSI Payments?

To see how a special needs trust can positively affect your loved one from a financial standpoint, we can use an example from SSI. The following actions may have these results:

  • If you receive extra money directly (such as from a gift or inheritance), your SSI payment will be reduced.
  • If a loved one pays money directly to your providers for food or shelter, your SSI payment will be reduced up to a certain amount designated by the program.
  • If a special needs trust pays money directly to providers for items other than food or shelter, your SSI payment will not be reduced.

Types of Special Needs Trusts

There are three types of special needs trusts:

  • First party trusts in which the individual with a disability funds the trust with their own money but a trustee manages the trust property.
  • Third party trusts that are set up by relatives for the benefit of someone else who has a disability, often through a will or life insurance policy.
  • Pooled trusts that are set up through a nonprofit organization and pools assets from different people and puts them into a large investment fund while giving each beneficiary their own account.

Special Characteristics of Special Needs Trusts

One important characteristic of a special needs trust is that the beneficiary cannot directly access the money in the trust. Instead, a trustee manages the trust property. A special needs trust may have to include certain provisions for it to be considered this unique type of trust, such as:

  • The trustee has the discretion to make distributions from the trust;
  • The primary purpose of the trust is to supplement the public benefits they receive;
  • The beneficiary does not have control over the assets; and
  • The state will receive any funds left in the trust at the time of the beneficiary’s death (depending on the type of trust).

What Are the Advantages of a Special Needs Trust?

The primary advantage of a special needs trust is that you or your loved one can benefit from an inheritance or other gift without jeopardizing their public benefits. Government programs provide for basic needs, but funds in a special needs trust can provide for other uses that enhance your loved one’s life, such as education, telephone service, recreation, and travel. A carefully crafted special needs trust can give your loved one a better quality of life without risking the benefits they rely on.

What Are the Disadvantages of a Special Needs Trust?

There are a few drawbacks to special needs trusts, including:

  • They are complex and not all estate planning lawyers are familiar with them.
  • They have strict rules that must be carefully followed to avoid making a trust that is ineffectual.
  • Payments cannot be made directly to the beneficiary.
  • There are limited uses for trust funds.
  • You cannot use payments for food or shelter.
  • Loved ones must name the trust, not the individual, in their own estate planning documents to complete a transfer.

Due to these drawbacks, you might want to consider working with an estate planning lawyer who is experienced with these types of trusts if you want to provide for a beneficiary with disabilities. The estate planning lawyers from Von Rock Law are experienced with a wide array of trusts, including special needs trusts.

What Type of Trust Would You Use for a Disabled Beneficiary? 

A special needs trust is a good fit if you want to provide your loved one with disabilities assets to enhance their quality of life. However, if your loved one’s income may exceed a certain limit, you may want to consider a different type of trust, such as a Miller Trust or Qualified Income Trust. This type of trust is used to help your loved one retain their benefits if their income might exceed the program limit. An experienced estate planning lawyer can discuss your unique situation and recommend which types of trusts might best effectuate your goals.

What Can a Special Needs Trust Pay for in California?

Special needs trusts should not be drafted to provide food, shelter, or other needs that the program is designed to provide. Instead, funds can be designated to provide for supplemental needs of your loved one that do not supplant their public benefits. Possible uses for special needs trust funds include:

  • Dental expenses, such as dental implants, dentures;
  • Uncovered medical expenses, such as elective surgery, specialist visits otherwise uncovered, over-the-counter medications, special therapies, eyeglasses, medical devices, massage, physical therapy, speech therapy, occupational therapy, personal assistance;
  • Home expenses, including purchase of a home, down payment of a home, home alarm system, cable services, internet service, telephone services, home repairs or modifications, furnishings, and other items for the home;
  • Vehicle expenses, including the purchase of a vehicle, gasoline, car insurance payments, auto maintenance, license fees, and registration expenses; and
  • Funeral and burial expenses;
  • Professional services, including accounting and legal needs;
  • Grooming and hygiene, including the purchase of cosmetics, toiletries and clothing, haircuts and beauty services, dry cleaning, and laundry supplies;
  • Recreational purchases, including computer, hardware, hobby supplies, club dues, books, and fitness equipment;
  • Travel expenses, including the cost of a personal assistant; and
  • Education expenses to enroll in a tuition program, attend conferences, or take a class.

Contact a Special Needs Trust Lawyer for Help

The rules for setting up and managing special needs trusts can be complicated. An experienced estate planning lawyer from Von Rock Law can ensure that your trust meets the requirements and can help avoid mistakes that lead to problems with the trust or your loved one’s benefits. Consider contacting us at (866) 720-0195 for help.

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