Special Needs Trusts are crucial to ensure a disabled beneficiary is not disqualified from receiving public benefits. Simply leaving assets outright to a beneficiary on public benefits will affect their eligibility for government benefits they are entitled to. Even though the beneficiary may typically own a maximum of $2,000 in personal assets, a special needs trust can hold unlimited assets for their benefit. This trust can be used to supplement care above what is provided by government benefits (SSI, Medi-Cal, IHSS, etc.), which are never adequate. These intricacies are among the reasons you should consult a special needs trust attorney for your specific needs.
Why Should You Create a Special Needs Trust?
The supplemental needs trust or special needs trust funds can be used to pay for things like education,
medical and dental benefits not covered by insurance, vacation, hobbies, purchase of a home, rent (with some limitations) basically, anything not covered by government benefits.
It is crucial to create a Special Needs Trust rather than leave money to another sibling or relative for their care. The funds you intend to be used for your loved one with special needs may be lost to creditors of the sibling or relative and may be accessible to their spouse upon divorce.
How do Special Needs Trusts Work?
Assets are funded and managed in trust by a third party trustee who has sole and absolute discretion while the beneficiary is restricted from compelling distributions. Although the beneficiary can’t compel distributions, the trustee owes the beneficiary a fiduciary duty and is obligated to provide distributions as outlined in the trust. Thus, a beneficiary or a family member of a beneficiary can take the trustee to court to have them removed and replaced if they are failing to meet their fiduciary duty. Distributions are typically paid on behalf of the beneficiary rather than directly to the beneficiary to prevent the funds from counting against the individuals SSI. Typically cash distributions to an SSI recipient result in a dollar for dollar reduction of SSI after the first $20.
There are three main types of special needs trust:
- First party special needs trusts
- Third-party special needs trusts, and
- Pooled special needs trusts.
First Party Special Needs Trust
First party or self-settled special needs trusts are funded by the individual’s assets, typically from inheritance or a personal injury/workman’s compensation settlement. If someone left an inheritance to a beneficiary receiving public benefits, if it is small, they can work with a special needs trust attorney to spend down the money without losing their benefits.
In most cases, the inheritance justifies the expense of setting up a first party special needs trust. Depending on the individuals capacity, setting up a first party special needs trust may or may not require a court proceeding.
Third Party Special Needs Trust
A third party special needs trust is created and funded by a third party (friend or family member) for the benefit of a disabled individual. The trust can be set up as a subtrust of a parent’s Revocable Living Trust, which will not be funded until their death, or as a stand-alone, third-party special needs trust, which will receive immediate funding.
A subtrust makes sense when a parent wants to leave money to their child upon death and there are no grandparents or other relatives wanting to leave money to the child.
Where parents and grandparents both intend to leave money for the disabled individual, it typically makes sense to set up a single stand-alone special needs trust and have each of the parents and grandparents designate the special needs trust as the beneficiary of that share within their own trust. A stand-alone trust also makes sense when a relative wants to provide cash gifts during their lifetime.
Pooled Special Needs Trust
A pooled special needs trust is a trust managed by a nonprofit where the assets of each participant are pooled and managed under a master trust. Each nonprofit has its own fees and administrative procedures, and joining still requires you to retain a special needs trust attorney to prepare the paperwork and advise you as to the benefits and burdens.
Kam Law Firm focuses on preparing special needs trusts. Our team realizes that each case is unique, which is why our special needs trust attorneys work closely with our clients ensuring they get the individualized attention they deserve. If you have questions or are in need of a special needs trusts attorney or estate planning attorney in San Diego, please call us today for a free consultation at (619) 535-1405.