Special needs trusts were created for circumstances that arise in life that can create the need for assets to be set aside to provide for the support of a person, who, due to a disability, is unable to provide financially for themselves. In this case, a disabled person will likely require financial assistance above the money provided through means-tested assistance programs.
In some cases, a disabled person may be entitled to a large sum of money which he or she may not have the capacity to properly manage. Under these circumstances a special needs trust or, as they are sometimes referred to, a supplemental needs trust or irrevocable special needs trust, may be used to provide support to a disabled person.
Reasons for a Special Needs Trust
You may ask why a trust is necessary for a disabled person when support could be supplied directly to the person from an allowance or a gift? The answer to this question involves two factors.
The first rests on the fact that a disabled person may not be in a position to manage his or her financial affairs or may also be vulnerable to exploitation. Therefore, keeping financial support through the controlled structure of a trust can protect the disabled person from financial risk or potential exploitation. This can be particularly useful if the beneficiary is disabled from an accident and has received a large settlement.
Secondly, almost all means-tested programs that provide financial assistance, housing, or medical care to the disabled have an income threshold at which a recipient cannot exceed or risk becoming ineligible. In this case, a special needs trust can provide support while still keeping eligibility for services intact.
Special Needs Trust California
Functionally, a special needs trustin California is like any other trust in which a person or organization, such as a Bank, acts in the role of trustee for the disabled beneficiary. Usually, a special needs trust is put in place when a disabled person’s guardian or caretaker passes away, thus allowing the disabled person to receive financial support from an inheritance incrementally over time.
However a grantor who funds the trust may still be living and use it as a way to provide extra support while not endangering the beneficiary’s eligibility for assistance. Just as in other trust arrangements, a variety of assets, such as cash, stocks, bonds, and real estate can be placed into a trust, to provide ongoing support for a disabled person.
However, a special needs trust is unique from other trusts in that the beneficiary has no direct control or access to funds in the trust while the trustee manages the trust. Further, the trustee has broad discretion to make distributions to the beneficiary according to trust distribution directives found in the trust agreement.
Special Needs Trusts and Means-Tested Benefits
One of the primary benefits that comes from a special needs trust involves enabling a disabled person to receive financial support without losing or reducing their benefits from means-tested or disability-based programs. Programs such as Supplemental Security Income (SSI), Medi-Cal, In-Home Support Services (IHSS), and HUD housing assistance place limits on the amount of assets a beneficiary may have on hand.
For example, SSI, Medi-Cal, and IHSS impose a $2000 per individual limit. Similarly, SSI has a countable resource limit of $2000 for an eligible individual and $3000 for an eligible couple. Medi-Cal regulations further state that a person cannot have more than $2000 in countable resources while a couple is limited to $3000. In this context, a special needs trust serves as a way to set money aside for the beneficiary without counting against countable resource limits.
In cases where a disabled person receives an inheritance, or a settlement, assets can be placed in a special needs trust to protect their disability benefits. Under “normal circumstances” a disabled beneficiary would likely lose their benefits because the windfall from an inheritance could make them ineligible because they will exceed the eligibility threshold.
A special needs trust can provide an alternative to placing money in a bank account that under SSI and Medi-Cal guidelines is treated as a countable resource. Since the beneficiary does not have control over the assets in trust, these programs regulations do not treat them as countable resources.
Special Needs Trust Attorney
A special needs trust attorney can provide legal advice regarding establishing and administering a special needs trust living trust. Additionally, a California special needs trust attorney in can provide the trust maker and trustee with a clear overview of the trusts legal, financial and tax implications of special needs trust.
A special needs trust attorney can also provide an evaluation as to whether this type of trust is an appropriate estate planning tool; what to expect from the trust while you are still living and whether this an appropriate financial planning tool in the event of a windfall.