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Addressing Special Needs Trusts in California Estate Planning

What is a Special Needs Trust?

A Special Needs Trust (SNT) is a legal tool designed to benefit individuals who have physical or mental disabilities. The main goal of an SNT is to make sure that the beneficiary still qualifies for Supplemental Security Income (SSI), Medicaid, or other government assistance, while having access to additional funds for extra care or needs not covered by these programs. In California, the law allows for the creation of these trusts to provide for the supplemental needs of a disabled person, without disqualifying them from receiving government benefits. The funds in the trust are not considered an available resource for determining eligibility for public benefits.

For example, let’s say you have a child with special needs who relies on government assistance for medical care. If you were to leave them a large sum of money directly, it could disqualify them from receiving those benefits. However, if you place that money into a Special Needs Trust, your child can continue to receive their benefits while also accessing the trust funds for additional needs.

How Do I Set Up a Special Needs Trust in California?

Setting up a Special Needs Trust in California involves several steps. First, you need to identify a suitable trustee. This person will manage the trust and make decisions about how the funds are used. The trustee can be a family member, friend, or a professional trustee.

Next, you need to fund the trust. This can be done with cash, investments, real estate, or other assets. It’s important to note that once assets are placed into the trust, they are legally owned by the trust and must be used for the benefit of the person with special needs.

Finally, you need to create the trust document. This is a legal document that sketches out the terms of the trust, including who the beneficiary is, who the trustee is, and how the trust assets should be used. It’s crucial to work with an experienced attorney to ensure the trust is set up correctly and in accordance with California law.

What are the Responsibilities of a Trustee of a Special Needs Trust?

The trustee of a Special Needs Trust has a fiduciary duty to manage the trust assets in the best interest of the beneficiary. This includes making prudent investment decisions, keeping accurate records, filing tax returns, and making distributions in accordance with the terms of the trust. The trustee must also be aware of the rules regarding government benefits and ensure that the distributions from the trust do not disqualify the beneficiary from receiving these benefits. This can be a complex task, and it’s often beneficial to have a trustee who is familiar with the intricacies of Special Needs Trusts and government assistance programs.

What Can a Special Needs Trust Pay For?

A Special Needs Trust can pay for a wide range of expenses that enhance the quality of life for the beneficiary. This can include education, therapy, personal care attendants, out-of-pocket medical expenses, recreation, and even vacations. However, it’s important to note that there are restrictions on what the trust funds can be used for.

Can a Special Needs Trust be Used for Housing Expenses?

While a Special Needs Trust cannot directly pay for food or shelter without affecting the beneficiary’s eligibility for government benefits, it can be used to pay for certain housing-related expenses. For example, the trust can pay for utilities, home modifications for accessibility, furniture, household goods, and maintenance costs.

Can a Special Needs Trust be Used for Educational Expenses?

Yes, the funds from a Special Needs Trust can be used to pay for educational expenses. This can include tuition for private school, college, or vocational training, as well as costs associated with tutoring, books, and other educational materials. However, it’s important to remember that the funds must be used to supplement, not replace, the benefits provided by government assistance programs.

What Happens to a Special Needs Trust After the Beneficiary’s Death?

After the death of the beneficiary, the Special Needs Trust typically terminates. However, what happens to the remaining assets in the trust depends on the type of SNT that was established.

In a first-party SNT, which is funded with the beneficiary’s own assets, the state may seek reimbursement from the remaining trust assets for the cost of Medicaid services provided to the beneficiary during their lifetime. This is known as the Medicaid payback provision. After the state is reimbursed, any remaining assets can be distributed to the beneficiary’s heirs or as directed by the trust document.

In a third-party SNT, which is funded with assets from someone other than the beneficiary (such as a parent or grandparent), there is no Medicaid payback requirement. The remaining assets can be distributed according to the terms of the trust, typically to the beneficiary’s heirs or other family members.

Can a Special Needs Trust be Contested?

Like any other trust, a Special Needs Trust can be contested. However, contesting a trust is a complex and often costly process. Grounds for contesting a trust can include allegations of undue influence, lack of capacity, or fraud in the creation of the trust. If a Special Needs Trust is successfully contested, it could have serious implications for the beneficiary, including potential loss of government benefits. It’s best to work with an experienced attorney when setting up a Special Needs Trust to ensure it is legally sound and less likely to be contested.

If you’re considering setting up a Special Needs Trust or have questions about managing an existing one, call the Singh Law Firm today at 510-901-5375 or 818-658-2174 for a free case evaluation!


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