Special Needs Trusts

A Special Needs Trust (“SNT”) is designed to preserve trust assets for the “special needs” of a disabled beneficiary without jeopardizing the beneficiary’s public assistance benefits.

Public benefits are available for persons who are blind, disabled, older or in need of skilled nursing care. These benefits are designed to provide food, clothing, shelter and essential medical benefits to the recipient. The purpose of a SNT is to protect a beneficiary's eligibility to receive government benefits (such as SSI and Medi-Cal), and still allow the beneficiary to benefit from the assets in a SNT. Thus, the SNT can provide for things not paid for by the government, such as a specially equipped van, additional medical care, a motorized wheelchair, vacations or entertainment.

1. Discretionary Distributions, Not Mandatory: The trustee must have discretion to pay for the special needs of the beneficiary; the payments cannot be mandatory. The trust funds generally should not be used for food, clothing or shelter. Careful planning and legal advice is important to guide the trustee and to prevent inadvertent disqualification from public benefits.
2. Examples of “Special Needs”: Special needs which can be paid for by the SNT include: entertainment, recreation, movies, vacations, specially designed equipment for the beneficiary, medical costs not covered by Medi-Cal and dental costs not covered by Medi-Cal.
3. Beneficiary Restricted Access: The trust assets must be unavailable to the beneficiary; this means that the beneficiary cannot demand payment by the trustee.
4. Income Tax: A SNT is irrevocable and will have it’s own individual tax identification number, the trustee will submit annual fiduciary tax returns and taxes will be paid out of the SNT.

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Who Needs a Special Needs Trust?

A SNT may be created by itself, in a living trust, in a Will, in a testamentary trust or as part of a personal injury settlement. A SNT is useful in the following different situations:

1. SSI/Medi-Cal (Supplemental Security Income). SSI is based on disability and financial need. SNT’s can be used to provide additional funds for a beneficiary receiving SSI. Basically, the same assets which are exempt and non-exempt for long-term care Medi-Cal benefits apply to SSI benefits.
2. SSDI/Medicare (Social Security Disability Income): Social Security Disability Income is an entitlement program based upon contribution to Social Security by the disabled individual or by that individual’s retired or deceased parent. The value of an individual’s estate is irrelevant to SSDI qualification; thus, the purpose of special needs trusts for individuals on SSDI is different than for individuals on SSI.
3. Long-Term Care Medi-Cal: Medi-Cal benefits provided for long-term care in skilled nursing facilities are based on financial need. SNT’s can be used to provide additional assets or services for a beneficiary receiving Medi-Cal.
4. Gifts: A SNT can be used as a vehicle to allow annual gift giving by a parent or grandparent for the benefit of a disabled beneficiary.
5. Estate Planning: If you have a family member or other loved one with a “special need”, such as a disability, inability to care for themselves or a drug addiction, a SNT may be the proper vehicle to meet your estate planning goals. Your Will or Living Trust can include a SNT which will hold and manage assets for the disabled beneficiary following your death.
6. Personal Injury Settlement: A person who is disabled in an accident may qualify for SSI and Medi-Cal due to the accident. However, the award of a personal injury settlement could jeopardize the individual’s qualification for the much needed public benefits. A SNT can be used to prevent disqualification from public benefits and still allow the person to benefit from the settlement award.

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