Special Needs Trusts: Planning for Loved Ones with Disabilities

When it comes to estate planning, one of the most crucial considerations for families with a disabled loved one is setting up a Special Needs Trust (SNT). This legal tool is designed to ensure that individuals with disabilities can receive financial support without jeopardizing their eligibility for vital government benefits like Medicaid and Supplemental Security Income (SSI). Let’s break down how SNTs work and how they can be established. 

What Is a Special Needs Trust?

A special needs trust is a specific type of trust created for the benefit of an individual with disabilities. It allows assets to be held in trust and used to enhance the quality of life of the beneficiary without disqualifying them from government assistance programs. In California, these trusts must be carefully structured to comply with both state and federal regulations.

The trust is managed by a trustee, who has the discretion to make distributions for the benefit of the disabled individual. These distributions can cover a wide range of expenses, such as medical and dental expenses, education, rehabilitation, transportation, and personal care. Importantly, the funds from an SNT should not be used for basic needs covered by government benefits, as this could affect the beneficiary’s eligibility.

The Three Types of Special Needs Trusts in California

Under California, there are three varieties of SNTs available. Each has its own requirements, and they are not equally useful in estate planning. 

  • First-Party SNT: This SNT may be funded with assets belonging to the person with disabilities, often arising from an inheritance, legal settlement, or personal savings. A first-party SNT funded with an inheritance is typically not established through an estate plan but rather through probate, and the process can be very complex. 
  • Third-Party SNT: This SNT is funded with assets from someone other than the beneficiary, typically parents or other family members planning for the future care of their disabled loved one. This is substantially more common in estate plans. 
  • Pooled Trusts: Managed by nonprofit organizations, these trusts allow multiple beneficiaries to pool their resources for investment and management purposes while maintaining separate accounts for each beneficiary’s needs. If you wish to support multiple disabled or incapacitated individuals, this may be a better solution. 

Setting Up a Special Needs Trust in California

The process of setting up an SNT California involves several steps:

  • Choosing the Right Type of Trust: Based on the source of the funds and the individual circumstances, decide between a first-party, third-party, or pooled trust.
  • Selecting a Trustee: The trustee must be responsible, trustworthy, and understand the beneficiary’s needs. They can be a family member, a professional trustee, or a management company.
  • Drafting the Trust Document: The trust document must be prepared in accordance with California law and should clearly outline the terms of the fund, including the trustee’s powers and the purpose of the fund’s establishment.
  • Funding the Trust: Once created, the SNT needs to be funded with assets. This could include cash, investments, real estate, or other assets.

An experienced attorney can assist you with accomplishing these goals without putting the beneficiary’s public assistance benefits at risk, if necessary. 

Legal Considerations and Challenges of SNTs

The creation of an SNT is a complex legal process that requires a thorough understanding of both state and federal laws. One of the key challenges is ensuring that the fund does not impact the beneficiary’s eligibility for public assistance programs, which takes legal care. 

Additionally, it’s crucial to consider the long-term needs of the beneficiary and the sustainability of the trust. By doing so, families can ensure that their loved ones with disabilities receive the care and support they need while preserving their eligibility for crucial government benefits.

Seek Experienced Legal Counsel to Establish SNTs in California

Setting up a special needs trust is a significant step in securing the financial future of a loved one with disabilities. By understanding the types of trusts available, the legal requirements, and the role of a skilled attorney, families in California can make informed decisions that protect and enhance the lives of their disabled family members.An experienced California estate planning attorney plays a pivotal role in setting up an SNT. They can provide valuable advice on the type of trust that best suits the family’s needs, ensure compliance with legal requirements, assist in selecting an appropriate trustee, and guide the process of funding and managing the trust. We encourage you to schedule a consultation with the experienced estate planning lawyers at The Dayton Law Firm, P.C., to learn more about how we can assist you with establishing an SNT as part of your plan.