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A special needs trust (SNT) is a legal arrangement designed to help individuals with disabilities or other special needs protect their assets and maintain their eligibility for government benefits (such as Supplemental Security Income (SSI) and Medicaid/Medi-Cal). The trust is managed by a trustee who is responsible for managing the assets and making distributions in accordance with the terms of the trust.

The trustee can be a family member, friend, or professional fiduciary but cannot be the beneficiary of the trust. The funds in the trust can be used to cover a wide range of expenses, including medical equipment, automobiles or vans, the maintenance on them, computers, games, special therapy, and many other items that are not cash or in-kind support and maintenance.

The trustee cannot make distributions of cash to the beneficiary or this would result in a reduction in benefits. In kind support and maintenance are payments for food and shelter. If a trustee pays for the beneficiary’s food and shelter, there would also be a reduction in benefits, but it would be limited to a maximum reduction of 1/3 of the benefits.

Types of Special Needs Trusts

There are two types of special needs trusts: first-party trusts and third-party trusts.

A first party trust is used to protect the beneficiary’s own assets, such an inheritance or receipt of money from a lawsuit filed by the beneficiary. A third-party trust is funded with the money of someone other than the beneficiary—such as the beneficiary’s parents or grandparents.

Oftentimes the parents and grandparents of special needs beneficiaries leave an inheritance outright to the disabled person. This inheritance now belongs to the disabled beneficiary. Because it is now the disabled beneficiary’s money, a first party trust must be used. Had the parent or grandparent placed the inheritance in a third-party special needs trust, this problem would have been avoided. It’s important to work with an attorney who is knowledgeable about special needs planning to ensure that the trust is set up correctly and in compliance with all applicable laws and regulations.

A third-party special needs trust is a legal arrangement that allows a person (the “grantor” or “Trustor”) to set aside assets for the benefit of a person with disabilities (the “beneficiary”). The trust is funded with assets that belong to the grantor but are held and managed by a trustee for the benefit of the beneficiary.

Unlike other types of special needs trusts, which are funded with the beneficiary’s own assets, a third-party special needs trust is funded with assets that belong to someone else. This type of trust is often used as part of an estate plan to provide for a loved one with disabilities without jeopardizing their eligibility for government benefits.

The terms of a third-party special needs trust can be customized to meet the specific needs of the beneficiary. The trustee is responsible for managing the trust assets and making distributions to the beneficiary according to the trust’s terms. The trustee can be a family member, friend, or professional trustee.

Which type is the better choice?

Both first-party special needs trusts and third-party special needs trusts serve different purposes and are appropriate in different situations. In general, a third-party special needs trust is often considered the better option because it allows the beneficiary to receive both government benefits and additional financial support from the trust without the risk of government reimbursement. However, the decision of which type of special needs trust to use depends on the individual circumstances of the beneficiary and their family. It is recommended that you consult with an estate planning attorney who specializes in special needs planning to determine the best approach for your specific situation.

Contact Us for Personalized Estate Planning in Southern California

We know discussing end-of-life plans can be difficult, but we approach this delicate conversation with respect and dignity. Our estate planning services cover all areas of elder law and probate based on your specific financial & health situation. If you have questions or concerns regarding your estate plan, probate, special needs planning, or elder law, attorney Dennis M. Sandoval and the Sandoval Legacy Group team are ready to assist you.

Southern California’s Premier Estate Planning & Probate Litigation Law Firm

With thirty-plus years of experience as an estate planning law firm in Southern California, you will have the most experienced legal minds to guide you. The trusted estate planning lawyers at the Sandoval Legacy Group, a division of Holstrom Block & Parke, A Professional Law Corporation, have offices located throughout Southern California in Orange, Riverside, San Diego, San Bernardino, and Los Angeles counties.  If you have questions or concerns regarding your estate plan, special needs planning, elder law, conservatorships, advanced tax planning, or probate, contact us or give us a call at (888) 502-2881 to schedule a complimentary consultation.