Families who have a loved one with special needs may have many worries, including the cost of their care and how to plan for their long-term needs. Well-intentioned family members may look to wills or other estate planning documents to provide monetary support for their loved ones after they are no longer living.
Unfortunately, a bequest in a will can have unintended consequences. It may make it more difficult for the person with special needs to qualify for much needed government programs. A special needs trust can help families get around this potential problem.
A special needs trust allows a person or an organization, like a bank or other financial institution, to manage assets for a person with a disability. The person who manages the trust is the trustee and the person who is disabled is the beneficiary of the trust. There are many types of assets that can be put into a trust including cash, stock, bonds and real estate.
In California, a special needs trust allows the beneficiary to continue to qualify for important benefits like Medi-Cal, which provides health care coverage, housing assistance and Supplemental Security Income.
Three types of special needs trusts
A third party special needs trust is usually set up by a disabled person’s parents and provides money to the trust, often through their wills and life insurance benefits. The money in this type of trust cannot be used for housing or food because those are considered basic needs for the purposes of Social Security benefits.
A first party special needs trust is used if the disabled person has accumulated significant assets – for example, from an inheritance or court settlement. Before 2016, this type of trust had to be set up by the disabled person’s parent, grandparent, guardian or the court. Now, a disabled person can set up a first party trust themselves if they choose.
Finally, a pooled special needs trust combines assets from several different people in one investment fund. Each beneficiary then has their own separate account. These trusts are set up through a nonprofit organization, which also acts as the trustee.
An experienced attorney can review each family’s unique circumstances and draft an estate plan specific to the family’s needs. A special needs trust can provide the family with the peace of mind of knowing that their loved one will be looked after for many years to come.