Special Needs Trusts (SNT) are designed for disabled beneficiaries so as not to interrupt their Medi-Cal and/or S.S.I. benefits. These Trusts are ESSENTIAL for this purpose and some implementation for their arrangement should be provided for in the Family/Living Trust. Our special needs trusts attorney San Diego will provide you with the best options.
Because of their technicality and usefulness in allowing a disabled beneficiary to continue to receive their benefits, I utilize a “stand alone” SNT and do not incorporate it in the Family/Living Trust which serves other purposes. For one reason, it is an Irrevocable Trust while the Family/Living Trust is a revocable Trust. Another reason to make it a Separate Trust is the State of California may want to review the SNT to determine if it meets state and federal standards. I don’t want my clients’ personal information, assets, distributions and beneficiaries to become part of the state’s knowledge and records. That would be the case if the SNT was made part of the Family/Living Trust.
There are two types of SNTs – a First Party Trust and a Third Party Trust. Most of the SNTs I draft are Third Party SNTs. There is an important difference in the two which has to do with who gets the ultimate remainder of the Trust after the death of the disabled beneficiary.
Third Party SNT: In this case, the inheritance to the disabled child or beneficiary comes from a Third Party, usually the parent or grandparent. For example in the Family/Living Trust there would be a share of the distribution directly to the SNT. As a result, the disabled child or beneficiary would never have possession or control over his/her share of the inheritance. This is a good thing. As a result, the Creator of the SNT, the parent, grandparent or some Third Party, can designate who gets the remaining assets or funds in the SNT after the death of the disabled beneficiary, which is usually other family members.
First Party SNT: This SNT arises when a disabled beneficiary receives an inheritance or funds personally and title to such inheritance is transferred from the disabled beneficiary to the SNT. Hence, a First Party SNT. Most of these SNTs are scrutinized closely by the state and some are created by Court order. That is another reason to hire only the best Special Needs Trusts Attorney in San Diego. The problem with these Trusts are that the State of California or any other state who has rendered benefits to the disabled beneficiary must be designated as the Primary Beneficiary after the death of the disabled beneficiary. If anything is left after the state’s claim, other family members may become beneficiaries secondary to the state.
SNTs are technical and must be carefully drafted. The disabled beneficiary has no demand rights as the Trustee has absolute discretion in providing for such beneficiary. However, it is strongly recommended in the Estate Plan if a disabled beneficiary is to receive a share of the inheritance.
At our law firm, we have the expertise to provide you with the best solution. Our Special Needs Trusts Attorney San Diego will take care of you and your family.
What is a Special Needs Trust and why does my disabled family member need one?
A Special Needs Trust (SNT) is a legal structure designed to hold and manage assets for a person with disabilities without disqualifying them from government benefits like Medi-Cal and SSI. These programs have strict asset limits, generally $2,000 or less for an individual. An inheritance received directly by a disabled person can immediately cancel those benefits. An SNT holds the funds on their behalf, supplementing government assistance rather than replacing it, and preserving their eligibility for the long term.
What is the difference between a First Party and a Third Party Special Needs Trust?
The key difference is where the funds come from and what happens to any remaining assets after the beneficiary dies. A Third Party SNT is funded by someone else, typically a parent or grandparent, and the Trust creator can designate who receives remaining funds after the beneficiary’s death, usually other family members. A First Party SNT holds the disabled person’s own assets and requires under federal law that the state be named as primary beneficiary after death to recoup Medi-Cal benefits paid. Stephens Law Group provides services for both 1st and 3rd Party Trusts.
Should the Special Needs Trust be part of my Living Trust or a separate document?
At Stephens Law Group, Special Needs Trusts are drafted as standalone documents, separate from the family/Living Trust. Keeping it separate ensures your personal financial information, your other beneficiaries, and the terms of your broader estate plan remain private and outside the state’s records. Should the SNT be audited, your private provisions in the Family/Living Trust remain isolated with that document and private from view.
Can I set up a Special Needs Trust for an adult child who became disabled recently?
Yes. An SNT can be established for anyone disabled, receiving Medi-Cal and/or SSI. However, a basic 1st Party Trust cannot be created for a person 65 or older. The Trust is not limited to people with lifelong disabilities; it applies equally to someone who became disabled through illness, injury, or accident at any stage of life. As long as the beneficiary qualifies for Medi-Cal, SSI, or similar means-tested programs, a properly drafted SNT can protect their benefit eligibility while providing supplemental resources that improve quality of life.
What expenses can a Special Needs Trust cover?
The Trustee has broad discretion to use Trust funds to supplement the beneficiary’s government benefits, not duplicate them. Common uses include medical and dental expenses beyond what Medi-Cal covers, education and vocational training, transportation, recreational activities, technology, personal care items, and other quality-of-life expenses. Direct cash payments to the beneficiary or payment for services already covered by government programs can jeopardize benefit eligibility, which is why professional drafting and ongoing Trustee guidance matter so much.
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