In numerous consultations with the Successor Trustee of a deceased parent, usually a son or daughter, the issue of a disabled sibling arises. The disability may have increased over the years and the sibling is now, or shortly will be, receiving S.S.I. or Medi-Cal. Or, so they thought. Because the now deceased parent left all the children an inheritance, S.S.I. and/or Medi-Cal is not now possible.

Special Needs Trust (SNT) legislation was adopted by most states to insure a better quality of life for the disabled. It allows us to provide for a disabled individual without disrupting, or precluding, S.S.I. or Medi-Cal, if they qualify. Thus, parents and grandparents can leave an inheritance to a disabled child or grandchild, in this regard, if it is designated to a SNT.

This is known as a 3rd Party SNT because someone other than the disabled individual arranges it. On the death of the disabled child or grandchild, the remainder of the funds are distributed according to the wishes of the parent or grandparent- usually to the other children or grandchildren.

But what if the parent doesn’t arrange the SNT? What happens then? May the disabled child arrange the SNT for himself/herself? The answer is maybe. If there is a grandparent still living and willing, he/she can create the SNT. If not, the disabled individual can petition the Court to arrange it. It is called a (d)(4)(a) 1st Party Trust which is closely scrutinized by authorities. Notice must be given of its existence to Social Security and the California Department of Health. More importantly, the State of California must be made the primary beneficiary of the Trust after the death of the disabled individual.

Strict accounting rules must be adhered to by the Trustee. If the Court authorizes the SNT, the Trustee is under the Court’s jurisdiction and may have to request additional Court orders, requiring additional Court appearances to purchase certain items of value. This can be an ongoing venture of frustration and inconvenience for the Successor Trustee.

If you have a beneficiary who has a disability or the potential for such, it would greatly benefit your family and Successor Trustee to arrange a 3rd Party SNT during your lifetime. The cost will be worth it for all concerned.

We are often asked what type of assets can be purchased and owned by the SNT for the disabled beneficiary. Take a look at some of the following, which is not an exhaustive list.

  1. A home plus improvements with modifications for the disabled beneficiary;
  2. Maintenance of the home;
  3. Utilities and TV cable;
  4. Furnishings in the home;
  5. Educational expenses;
  6. Costs of legal advice regarding benefits;
  7. A vehicle, its gasoline, oil and maintenance;
  8. Entertainment expenses;
  9. Insurance premiums.

These examples of expenses are intended to provide the disabled individual with a better quality of life while preserving his/her Medi-Cal and/or S.S.I.