What is a Special Needs Trust Used For?
A Special Needs Trust is a form of a trust and is usually established as an irrevocable trust. The main purpose of the Special Needs Trust is to prevent a disabled or aged beneficiary from losing benefits that are "asset sensitive". Medi-Cal and SSI (Supplemental Security Income) are two examples. These types of benefits are called means tested Public benefits and they require that the recipient fall below a certain income level to qualify to receive those benefits. If, for example, somebody receiving these benefits were to get an inheritance in the form of a large lump sum they may lose their ability to collect these benefits.
A Special Needs Trust is usually used in one of two ways. The first method is in Estate Planning to provide for child with a disability (this is called a third-party Special Needs Trust) and the second is in litigation where the judgment might be so large as to cause the person receiving benefits to lose them. There is also something called a first party Special Needs Trust. Rules restricting who can establish the first-party Special Needs Trusts won’t be discussed here.
Funding the Special Needs Trust
Funding a third-party Special Needs Trust can be done by both the parents and the grandparents. Of special benefit to the Special Needs Trust is that a generation-skipping tax that might apply to the property given by the grandparent to the grandchild. It should be noted that there are rules as to who can create and who can fund a Special Needs Trust. For a third-party Special Needs Trusts the beneficiary is not allowed to set up the trust nor can the beneficiary fund the trust. There are a few more requirements than this, but we won’t discuss them here.
Losing means-tested public benefits
There are many twists and turns regarding how and when you can lose means tested Public benefits and/or have stipends reduced. So many in fact that is not really practical to discuss them all within the confines of this blog. What we can learn and discuss is that as long as the beneficiary of a third-party Special Needs Trust cannot control how much or how often he or she is to receive funds – and as long as the beneficiary cannot gain access to the entirety of the funds – then the assets in the trust may not be used to reduce the beneficiary's access to means-tested Public benefits. This is because the funds in the trust in this situation are not considered a resource that is available to the beneficiary.
It should be noted and understood that SSI and Medi-Cal are not the same thing as Social Security and Medicare. Social Security and Medicare are not means tested.
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For more information on Special Needs Trusts, requirements, restrictions, and other aspects, please contact me or an attorney licensed to practice in your jurisdiction.
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Just like my website, nothing in this blog is intended as legal advice. If you need legal advice, contact an attorney licensed to practice in your jurisdiction. I am licensed to practice law in California. Further, please remember that I speak in generalities in my blog (and on my website). There are so many different factors that can contribute and completely change the outcome that it would not be practical to discuss all of them here. This is why I speak in generalities. Thanks again for reading.
This document is for informational purposes only. Nothing in this is to be considered legal advice. Nothing in this shall create an attorney/client relationship, nor shall it create a confidential relationship. If you need legal advice (in California), feel free to contact me or someone licensed to practice in your jurisdiction. I assume no liability or responsibility for actions taken, or not taken, as a result of reading this information.