Special Needs Trust Lawyer in California

Helping Clients Safeguard the Financial Future of Their Loved One

Families with a special needs child or relative often face a dilemma when it comes to estate planning – leaving their special needs loved one the inheritance they deserve and risking making them ineligible for benefits, or letting them keep their benefits but reducing or eliminating the amount they may inherit. Fortunately, a Special Needs Trust (SNT) may offer a feasible solution to ensure the financial well-being of a loved one with special needs. The attorneys at the Sheela Stark Law Group, APC, explain how a special needs trust works and the steps you can take to set up this type of trust for your loved one. If you have legal questions or need help regarding estate planning for persons with special needs, call the Sheela Stark Law Group, APC, at 909-675-1545.

How Do I Leave an Inheritance for My Loved One With Special Needs?

For most people, having basic estate planning documents in place seems to be enough. Documents such as wills, living wills, and advanced healthcare directives usually take care of crucial tasks when a person is incapacitated or passes away. However, when you have a loved one who is disabled or has special needs, things are not that simple. While families worry about leaving their special needs loved one a decent inheritance that will take care of their financial needs after their caretakers are no longer around, doing so without careful planning may actually leave their loved one in a tough situation and have different results than those the family originally intended.

This is because special needs individuals are eligible for government benefits such as SSI (Supplemental Security Income), but only if they meet the income requirements for these programs. If they receive a lump-sum inheritance payment or other assets that can be counted as income, they may lose their eligibility for benefits. In other words, simply leaving an inheritance for your loved one through basic estate planning tools such as a will is typically a risky move that could do more harm than good. Instead, it is fundamental to take extra steps in the process of estate planning and put the proper tools in place to help care for your loved one’s financial future and leave them an inheritance without hurting their ability to receive benefits.

What Kind of Benefits Can a Special Needs Person Get From the Government in California?

In California, those who are blind or suffer from a disability that makes them unable to work and afford basic living expenses may be eligible for certain federal and state benefits. The most common benefit for a special needs person is SSI or Supplemental Security Income. The SSI program is run by the federal government and allows eligible disabled individuals to receive a monthly payment to help cover basic expenses, such as food, clothing, housing, and utility bills. To qualify for SSI, the individual must meet certain income requirements (such as not making more than $934.00 a month in unearned income as of 2023) and not having more than $2,000.00 in assets.

In addition, the state of California also offers SSP or State Supplemental Payments, which adds a certain amount ($219.73 for an individual as of 2023) to a qualifying individual’s SSI payments. California also provides automatic eligibility for Medi-Cal for anyone who is also eligible to receive SSI and SSP benefits. Medi-Cal is California’s version of Medicaid and offers healthcare coverage for the disabled, blind, and those with low income and over 65 years old.

What Exactly Is a Special Needs Trust?

A Special Needs Trust (SNT) is a living trust created specifically for the benefit of a person with special needs. Rather than replacing government benefits, a special needs trust is designed to supplement these benefits and provide a better quality of life for a person with disabilities or special needs.

A special needs trust is usually created by the special needs person’s family members and can be funded with a variety of assets, including cash, real estate, stocks, bonds, and life insurance. In order to work as intended, an SNT usually needs to be irrevocable, meaning it cannot be easily modified or canceled, and assets placed into the trust become the property of the trust. This way, assets in a special needs trust are not included as countable assets and will likely not impact the beneficiary’s eligibility for public assistance benefits.

A special needs trust is managed by a trustee, who must be someone other than the beneficiary. The trustee has the responsibility of managing the trust’s assets and distributing funds according to the wishes of the beneficiary. The trust funds can be used to pay for medical expenses, transportation, education, job training, recreational activities, and other needs that allow the beneficiary to maintain a quality of life and that are not typically covered by SSI. It also protects the beneficiary’s assets from creditors and from financial abuse by a caretaker.

Why Were Special Needs Trusts Created?

Special Needs Trusts (SNTs) were created in the late 1970s to provide a way for families to provide for the needs of a family member with special needs without interfering with vital government benefits such as SSI and Medicaid. Prior to the creation of special needs trusts, family members had only two options if they wanted to provide for the needs of a special needs family member. They could leave a lump sum inheritance to the special needs person, potentially resulting in the person losing vital government benefits until all inherited assets were spent down. Alternatively, they could disinherit the special needs person, which was a very unfavorable option that would leave no financial resources to the family member who needed them the most.

SNTs provided a way for families to provide for the needs of a special needs family member and give them an inheritance while still maintaining their eligibility for government benefits. With a special needs trust, the family member has access to the trust assets, but the assets do not count against their eligibility for government benefits, as the special needs trust is usually an irrevocable trust, and the assets it holds are owned by the trust and not by the beneficiary.

What Are Third-Party and First-Party SNTs, and Which One Should I Choose?

Third-party SNTs are funded with money or assets from someone other than the beneficiary. This can be a family member, friend, or any other person who wishes to provide financial support for the beneficiary. First-party SNTs, on the other hand, are funded with money or assets from the beneficiary. The funds usually result from receiving an inheritance or proceeds from a lawsuit, for example. A first-party SNT can be created by family members, friends, a court, or the beneficiaries themselves, provided that they are mentally capable of doing so.

In many cases, third-party SNTs may offer more advantages than a first-party SNT if they are created in advance before the parents or family members responsible for the care of a special needs loved one pass away. Creating a trust in advance can be a more effective way of allowing a special needs person to access their inheritance without disrupting their ability to receive government benefits. Third-party SNTs are generally easier to set up and are not subject to the extensive rules and regulations of a First-Party SNT. As always, it is best to consult a Special Needs Trust attorney to discuss your case and learn which type of special needs trust may be right for you.

What Is a “Payback” Clause, and How Does It Affect the Funds in a Special Needs Trust?

In addition to benefits eligibility, another important aspect to be aware of when considering a special needs trust is the payback clause. Certain SNTs (such as some kinds of First-Party SNTs) are created with a required payback clause that establishes that any assets that remain in the trust after the beneficiary’s death should be used to reimburse the government for the Medi-Cal benefits received by the beneficiary.

In other words, if there are any funds remaining in the special needs trust after the death of the person who was the trust beneficiary, these funds may need to be used to repay the government for Medi-Cal benefits. This is important because if the goal of the SNT was to preserve inherited assets for the beneficiary’s use and to pass them on to another beneficiary after the primary beneficiary dies, the payback clause might make it impossible to have any assets to pass on to the next person. This is another reason why consulting with a special needs trust and taking time to make adequate estate plans ahead of time is crucial for families looking to leave a legacy for their loved ones with special needs.

What Kind of Assets Can Be Placed in an SNT, and How Can the Beneficiary Access Them?

While owning items such as a car, home furnishings, and other everyday personal items will not affect an individual’s eligibility for benefits, receiving a lump sum of cash or sizable assets can result in the loss of benefits. Instead of giving the money or assets directly to the special needs person, the assets may be placed in the SNT. Because the special needs trust is irrevocable, the assets are now held by the special needs trust and do not count against the income threshold for public benefits.

A special needs trust can hold a variety of assets like any other trust. Money, financial assets, real estate, stocks and bonds, and any type of asset can be placed in the trust and used by the beneficiary. There is an important caveat that trustees and beneficiaries should be aware of – while the beneficiary is free to use trust assets for their own benefit, they need to be careful not to withdraw money from the trust, as the money taken from the trust could be counted as income and hurt their eligibility for public benefits. For example, instead of the trustee withdrawing $100 from the trust and giving it to the beneficiary for them to pay bills or purchase groceries, the trustee needs to have the SNT itself pay for those expenses.

It is crucial to fully understand how an SNT works and how to access it, so it may be a good idea to consult an attorney to get answers to your questions. If you are considering starting an SNT for a loved one or need legal help, contact the attorneys at the Sheela Stark Law Group, APC, by calling 909-675-1545.