Basics of special needs trusts

Estate planning can be complicated, but ensuring that one’s wishes are met post-death is important. This is especially true for those with disabled children and family members as proper estate planning can mean the difference between a normal standard of living and poverty. This is why the topic this week is Special Needs Trusts, also known as a Supplemental Needs Trust.

Definitions

Essentially, California SNTs empowers a third party (organization or individual), often a bank, to manage the assets of a person with a disability. In estate planning terms, this person is the beneficiary, and the third-party organization or individual is the trustee. And, “assets” refers to just about any property, including real estate and cash, and financial instruments, like bonds and stocks.

SNTs do not affect benefits

A key concern for those looking to leave assets to a person with a disability is how those assets (or income from those assets) will affect the beneficiary’s state and federal benefits, like Medi-Cal, assisted housing, Supplemental Security Income, etc. One of the key benefits of a SNT is that assets do not affect those benefits, and the assets are not counted toward the $2,000 individual asset limit for In-Home Support Services, Medi-Cal or SSI.

SNT restrictions

To avoid issues disability benefit issues, the SNT must have specific language. First, the trustee must be the one empowered to use the trust’s assets for the benefit of the beneficiary. They decide when and how funds are used. And, the main purpose of the SNT must be to supplement the disability benefits received by the beneficiary. Finally, the beneficiary cannot have any control over the assets, and they cannot be allowed to give up or sell their rights.

Generally, SNTs cannot be used as savings accounts though, which means that the assets which go into an SNT cannot have belonged to someone before the trust was set up. There are some exceptions to this rule for First-Party SNTs, and a discussion of those was already a topic here.

As readers can quickly see, to ensure that the SNT does not affect these services, it must be created properly, which is not always easy. This is why it is important to seek counsel to avoid causing the beneficiary problems.