Special Needs Trusts

As an estate planning attorney in Folsom who works with special needs beneficiaries and clients, the legalities of special needs trusts often come up in client discussions. A Special Needs Trust (SNT), also known as a Supplemental Needs Trust, is a legal arrangement designed to provide financial support and care for an individual with disabilities without jeopardizing their eligibility for means-tested government benefits such as Medicaid and Supplemental Security Income (SSI). These trusts are established and funded to enhance the quality of life and well-being of a person with special needs, while ensuring that they continue to qualify for essential public assistance programs.

Here are some key features and considerations regarding Special Needs Trusts:

1. Beneficiary: The beneficiary of a Special Needs Trust is the individual with disabilities for whom the trust is created. This person is often referred to as the “disabled” or “special needs” beneficiary.
2. Purpose: The primary purpose of a Special Needs Trust is to provide for the beneficiary’s supplemental needs and quality of life, such as medical expenses not covered by Medicaid, education, therapy, transportation, recreational activities, and other non-basic needs.
3. Preservation of Benefits: To maintain eligibility for means-tested government benefits like Medicaid and SSI, the trust assets must be used for the beneficiary’s supplemental needs, rather than basic necessities like food and shelter, which are typically covered by these programs. Properly structured SNTs help ensure this separation.
4. Trustee: A Special Needs Trust must have a trustee who is responsible for managing the trust assets and making distributions to meet the beneficiary’s supplemental needs. The trustee has discretion in determining what expenses are appropriate.
5. Funding Sources: SNTs can be funded with various assets, such as cash, investments, life insurance policies, inheritances, or gifts from family members and friends. Some SNTs are created with the beneficiary’s assets, particularly in cases of personal injury settlements or inheritances.
6. Types of SNTs: There are different types of Special Needs Trusts, including:
   • Third-Party Special Needs Trust: Established by someone other than the beneficiary, typically a parent or guardian, to provide for the individual with special needs.
   • First-Party Special Needs Trust (also known as a “Self-Settled” or “D4A” Trust): Funded with the assets of the beneficiary with disabilities, often in cases involving personal injury settlements or inheritances.
   • Pooled Special Needs Trust: Managed by nonprofit organizations that pool funds from multiple beneficiaries into a single trust for investment and administrative purposes.
7. Legal Requirements: Special Needs Trusts are subject to specific legal requirements and restrictions to ensure that they do not disqualify the beneficiary from government benefits. These requirements vary by state and California has a complex labyrinth of laws concerning the topic.
8. Trust Termination: Special Needs Trusts typically terminate upon the beneficiary’s death, at which point any remaining assets may be distributed according to the terms of the trust, including repayment to Medicaid for certain benefits provided during the beneficiary’s lifetime.

Conclusion

Creating and administering a Special Needs Trust requires careful planning, legal expertise, and compliance with federal and state laws. Consultation with an experienced Folsom attorney who specializes in estate planning is essential to ensure that the trust is structured correctly and serves the best interests of the beneficiary. If you have any questions about special needs trusts, please contact Thapar Law at 916-579-0605 or send us a message here.