Essential Guide to Special Needs Trusts in California

When a loved one has special needs, you want to make sure they're cared for, both now and in the future. But how do you plan for their well-being without jeopardizing their eligibility for government benefit programs like Supplemental Security Income (SSI) and Medi-Cal? This is where special needs trusts come in as a crucial aspect of estate planning. This type of trust offers a way to provide that extra support while safeguarding those essential benefits. Special needs trusts are legal arrangements that hold and manage assets for the benefit of a person with disabilities.

Table Of Contents:

• Understanding Special Needs Trusts:
  • Delving into the Types of Special Needs Trusts
  • First-Party Special Needs Trusts
  • Third-Party Special Needs Trusts
  • Safeguarding Eligibility for Government Benefits
• FAQs about Special Needs Trusts
  • What are the disadvantages of a special needs trust?
  • What is the best trust for a disabled person?
  • What is an example of a special trust?
  • What is the difference between a special needs trust and an ABLE account?
• Exploring Additional Resources for Special Needs Trust Information
• Conclusion

Understanding Special Needs Trusts:

Special needs trusts work by holding assets that are used to enhance the quality of life for the beneficiary, the person with disabilities. The trust assets can be used without directly impacting their eligibility for needs-based government benefits. Imagine being able to cover expenses like medical costs, specialized therapies, recreational activities, and even a vacation. All this is possible without compromising their access to vital government assistance programs.

Delving into the Types of Special Needs Trusts

Special needs trusts primarily come in two forms: first-party (also known as self-settled trusts) and third-party trusts. Choosing the best type depends entirely on the source of the assets funding the trust. It will also depend on how you want the trust estate to be managed.

First-Party Special Needs Trusts

These trusts are typically funded with assets belonging to the individual with disabilities, like a personal injury settlement or if the beneficiary receives an inheritance. This kind of arrangement lets a beneficiary use their own funds to improve their life without losing important safety net programs. However, there's a significant stipulation: if the beneficiary dies and there are remaining trust assets, Medi-Cal gets reimbursed first for the care it provided.

The 2016 21st Century Cares Act marked a significant change by allowing individuals deemed mentally capable to set up their own special needs trusts.

Third-Party Special Needs Trusts

These trusts provide even more flexibility because they're funded by assets from anyone other than the beneficiary. Parents or other family members often use these trusts to make sure their loved ones are cared for even after they're gone. Third-party special needs trusts offer a huge advantage.

Any assets that remain after the beneficiary dies can be distributed however the grantor (the person who created the trust) chooses. They don’t automatically have to be used for Medi-Cal reimbursement. This type of trust arrangement offers families valuable peace of mind. This is because it allows their legacy to benefit others even after their loved one's needs have been met.

Safeguarding Eligibility for Government Benefits

Many people with disabilities rely on government programs like SSI and Medi-Cal. However, strict asset limits can make it challenging to accumulate savings. The beauty of special needs trusts lies in their ability to provide supplemental support while remaining compliant with those limits. 

Take SSI for instance — to remain eligible, an individual generally cannot possess more than $2,000 of countable resources. Even something as seemingly minor as a modest personal injury settlement exceeding that threshold has the potential to disrupt their benefits.

Special needs trusts come in handy in this instance, providing a safe haven to manage these funds. All the while preserving eligibility for essential support programs.

FAQs about Special Needs Trusts

What are the disadvantages of a special needs trust?

While special needs trusts are invaluable for managing assets and ensuring eligibility for benefits, there are some factors to consider. Setting up and managing special needs trusts come with certain responsibilities, and there can be administrative and legal costs involved.

Choosing a trustee also requires careful consideration, as this role involves managing and distributing assets responsibly. The trustee must follow the trust agreement.

What is the best trust for a disabled person?

There isn't a one-size-fits-all answer. Deciding between a first-party special needs trust and a third-party special needs trust hinges on factors like the source of the funds. It will also depend on whether you need Medi-Cal payback provisions or not.

Consulting with an experienced estate planning attorney is essential. They will be your best resource in understanding your options. Your attorney will also be able to help you with selecting a structure aligned with the specific needs and goals you envision for your beneficiary.

What is an example of a special trust?

Here's a real-life scenario that illustrates the power of these trusts. Let's say a young adult named Alex receives a substantial financial settlement after a car accident. Sadly, the accident leaves Alex with lasting disabilities.

Knowing that exceeding SSI asset limits jeopardizes eligibility, his family establishes a first-party special needs trust to receive those settlement funds. These funds end up paying for essential therapies and support services, considerably enhancing his quality of life. The trust allows this all while protecting Alex's access to those critical SSI benefits.

What is the difference between a special needs trust and an ABLE account?

ABLE accounts are another fantastic tool for people with disabilities but they function very differently than special needs trusts. While helpful, these accounts come with yearly contribution limits.

Additionally, unlike a special needs trust, funds in ABLE accounts can potentially impact eligibility for some government benefits if balances exceed a certain threshold.

Exploring Additional Resources for Special Needs Trust Information

Knowledge is power and you'll find a wealth of resources available to help you. Websites such as specialneedsanswers.com and specialneedsalliance.org offer invaluable tools and guidance on finding the right professionals. They also provide information to help you make informed decisions regarding special needs trusts.

The websites also offer comprehensive directories to find pooled trusts. Pooled trusts are managed by nonprofit organizations for individuals requiring professional management. By tapping into these support systems and equipping yourself with information, you are better prepared to navigate this journey with confidence.

Conclusion

Navigating the complexities of special needs trusts is crucial. Understanding these trusts, available in first-party and third-party variations, are essential. These instruments will help secure the future of your loved ones, ensuring access to the care and resources they need for a fulfilling life.

*Please note that this article is for informational purposes only and does not constitute legal advice. For specific legal guidance, consult with a qualified attorney.