Special Needs Trust: Part One

San Diego has many residents who could benefit from a Special Needs Trust. Special Needs Trusts are estate planning documents for individuals with disabilities, whether they be physical or mental disabilities. In many cases individuals with disabilities are receiving government benefits and assistance such as supplemental security income (SSI) or Medi-Cal (which is the California version of Medicaid). If such an individual is receiving such benefits and receives money from another source such as from an inheritance, those government benefits may be in jeopardy. In all cases, the goal is to protect the beneficiary’s continued access to need-based government benefits.

There are several kinds of Special Needs Trusts. A Self-Funded Special Needs trust may be set up by the disabled person to hold a gift or inheritance. If the disabled person receives a cash gift as an example, it would be considered “property” of the disabled beneficiary so that the beneficiary is disqualified from receiving need- based benefits. A properly drafted Special Needs Trust will hold the cash or other assets in trust, not under the control of the disabled individual, and thereby allow the beneficiary to continue to receive government benefits. In addition, the trust may pay for some special needs of the beneficiary at the discretion of the trustee. Such items as medical, dental, personal services, and handicapped-equipped vehicles may be paid for by the trust without jeopardizing benefits. It is important that the trustee adhere to certain standards for maintaining the trust and investing the trust assets. The trustee needs to be aware that the assets of the trust can only be used to purchase supplemental items or services which are not provided by public benefits.

A Third Party Special Needs Trust is one set up the parents or other relatives of the disabled individual usually as a part of their own estate plan. As an example, a couple may have two children, one of which is disabled and receiving SSI and Medi-Cal. If the couple were to provide for their two children in their trust and distribute the estate outright to each of them, the disabled child may inherit assets which will disqualify him or her from further SSI and Medi-Cal. There can also be concerns about a disabled beneficiary receiving a large amount of money because the disability may make it difficult to manage finances. Instead of leaving assets directly to the disabled child, the couple can set up a Special Needs Trust for their disabled child. Since the disabled beneficiary has no control over the trust assets, his or her government benefits are preserved.

Another type of Special Needs Trust is one set up by the Court as part of a personal injury settlement. These are sometimes called Litigation Special Needs Trusts. A case may have been brought on behalf of the disabled person for a birth injury, a vehicular accident, or other accident resulting in the disability. As part of the settlement for such person, the Court requires the settlement proceeds be put into a Special Needs Trust. A trustee is appointed to manage the litigation proceeds for the disabled minor or adult.

The attorneys at the San Diego estate planning firm of Law Offices of Scott C. Soady, APC have extensive experience in special needs trusts. We welcome your inquiry and invite you to contact us by e-mail, or call us toll-free at (877) 435-7411 within California, or (858) 618-5510 outside of California to schedule a free in-house consultation.