Special needs trusts help many disabled Californians retain their eligibility for public benefits while holding different types of assets in trust. This can help people with special needs receive benefits through services such as Medicaid while providing them with other assets when they need them.
A special needs trust can be a valuable and practical estate planning tool. An experienced estate planning attorney can help you and your family with setting up the trust and appointing a trustee, who manages the trust assets for the disabled beneficiary.
There are two types of special needs trusts available in California and determining which one is best for your situation depends on who owns the assets.
First party and third-party special needs trusts
A first party special needs trust is filled with assets belonging to the disabled beneficiary. These assets can include real and personal property, cash or other assets that the beneficiary has a legal claim to, such as insurance proceeds.
But what if you want to create a special needs trust but the beneficiary does not own any assets? If this is the case, you have the option of creating a third party funded special needs trust.
The assets that fill a third party funded special needs trust do not have to belong to the beneficiary. In fact, it is not required that the beneficiary ever held, or had a legal interest in the assets.
Additional requirements for first party special needs trusts
First party special needs trusts come with some additional requirements and are classified as non-pooled or pooled trusts.
A non-pooled first party special needs trust can only be set up for a disabled beneficiary under the age of 65.
A pooled first party special needs trust has no age requirement, but a non-profit association must establish and manage the trust. While the disabled beneficiary has their own account, trust funds are pooled together.
When a first party special needs trust is terminated, or the disabled beneficiary dies, the California Department of Human Services will use the trust assets to recover the amount of medical assistance paid to the beneficiary. This is not a requirement for third party funded special needs trusts.
The type of special needs trust best for you depends on your specific circumstances. Establishing the right type of trust can help you best care for your disabled loved one.