A special needs trust in California is a legal instrument drafted by attorneys to direct financial support and care for individuals with disabilities or special needs. The trust’s purpose is to ensure that the beneficiary can receive financial assistance without jeopardizing their eligibility for government benefits, such as Medi-Cal, Supplemental Security Income (SSI), and other government programs.


How Are Special Needs Trusts Different?


In a special needs trust, the beneficiary is a person with special needs. The trust can be established for anyone with a qualifying disability or special need, regardless of age. The beneficiary may have a physical or mental disability or other needs that require ongoing support and care. Beneficiaries can include individuals with developmental disabilities, chronic illnesses, mental health conditions, or physical injuries.


What are the Mechanics?


In this type of trust, assets are held and managed by a trustee responsible for making distributions to the beneficiary for their benefit. The trust can be funded with various assets, such as cash, real estate, and stocks, and can be created by the beneficiary, their parent or guardian, or a court.

California has two types of special needs trusts: first-party and third-party. A first-party trust is established with assets owned by the beneficiary, such as a personal injury settlement. In contrast, a third-party trust is created with assets owned by someone else, such as a parent or grandparent.


Advantages of a Special Needs Trust


There are several good reasons to create a special needs trust. For many families, protecting the beneficiary’s eligibility for government benefits is an excellent idea. This trust can protect the beneficiary’s eligibility for benefits, such as Medi-Cal, SSI, and other government entitlements. These programs have strict income and asset limits, and receiving an inheritance or other beneficial payments could disqualify the beneficiary from receiving these benefits. By placing assets in trust, the beneficiary could receive financial assistance without affecting their eligibility for government benefits.

A special needs trust could also ensure the appropriate use of funds. The trustee has a fiduciary duty to manage the trust’s assets in the beneficiary’s best interests. This helps ensure that the funds are appropriately used for medical expenses, education, or other expenses related to the beneficiary’s disability or needs. Setting up a special needs trust can provide peace of mind for the beneficiary and their family members, knowing that there is a plan to provide ongoing support and care for the beneficiary’s needs.

Along those lines, the trust could help provide ongoing support for the beneficiary throughout their lifetime, even after the death of the trust’s creator. This can help ensure that the beneficiary has access to the financial resources they need to maintain their quality of life and receive necessary care and support. The trust can also offer some tax advantages, depending on the type of trust and how it is funded. For example, a third-party trust can allow the creator to make tax-free gifts to the trust, and the trust’s income may be tax-exempt or taxed at a lower rate than the beneficiary’s income tax rate.


Special Concerns of a Special Needs Trust


While creating this type of trust can be backed by the best intentions, there are several important points to consider when setting up a special needs trust. Typically, there may be additional legal fees to set up the Special Needs Trust, trustee fees when the trust is funded, and other costs associated with implementing, and maintaining the trust. These costs can add up over time and possibly reduce the funds available for the beneficiary.

Special needs trusts are involved legal arrangements, and the rules and regulations governing them can be confusing. Working with an experienced attorney who can help navigate the process and ensure that the trust is correctly set up and administered is essential. These trusts are designed to support the beneficiary’s needs related to their disability or special needs. The trustee may not be able to use the funds for other purposes, such as paying off the beneficiary’s debts or supporting other family members.

It’s important to note that a special needs trust is not appropriate for everyone. The decision to establish a trust should be made on a case-by-case basis, taking into consideration the individual’s specific needs, circumstances, and goals. Consulting with an experienced estate planning attorney specializing in special needs planning can help determine whether this trust is the right option for a particular situation.


Receive Legal Assistance from Your Attorney


The rules and regulations governing special needs trusts in California are complex, and it’s essential to work with an experienced attorney who can help you navigate the process and ensure that the trust is correctly set up and administered. Your attorney should be conversant with the tax consequences, health care plans, and other items that might impact the estate plan. The Law Offices of David R. Schneider can help you decide what course to take by weighing the factors that affect the advantages and disadvantages mentioned above.

Special needs trust and estate planning consultations are available virtually and in the office, and David is happy to help clients throughout California. He has helped thousands of families successfully set and achieve their estate planning goals. David sees clients by appointment only to ensure that each has his undivided attention. Contact us to schedule a free consultation today at 805-374-8777 or dschneider@drs-law.com. We look forward to hearing from you and helping you set up your comprehensive estate plan, including a trust, a pour-over will, durable power of attorney, advanced healthcare directive, and nomination of guardian and special needs trust, where needed.


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