Imagine a family gathering where love and care fill the room, but worry about a loved one’s long-term security casts a shadow. Many families share these concerns when caring for a family member with special needs. In these moments, a Special Needs Trust (SNT) can make all the difference.
At Vistas Law Group, we bring over 20 years of experience in trust and estate litigation to help guide you through setting up an SNT that meets California’s unique rules and your family’s individual needs.
A Special Needs Trust is a legal tool designed to provide for a person with disabilities while keeping them eligible for government programs like Medi-Cal and Supplemental Security Income (SSI). Unlike the cookie-cutter approach seen in some estate planning practices, we take the time to understand your situation so that every detail fits just right.
Setting up an SNT may seem overwhelming, but with the right guidance, it can be a powerful way to secure the long-term well-being of your loved one. In this article, we’ll explain the different types of SNTs and walk you through key steps and considerations that are often missed.
Types of Special Needs Trusts (with Added Nuances)
Understanding the options available helps you make the best choice for your family. Here’s a breakdown of the three main types of SNTs in California:
First-Party SNT (d4A Trust)
- What It Is: Funded with the beneficiary’s own assets, such as an inheritance or a settlement from a personal injury case.
- Key Point: This trust comes with a mandatory payback provision. When the beneficiary passes away, any remaining funds go back to the state to cover medical expenses.
- Age Requirement: The beneficiary must be under 65 when the trust is created.
Third-Party SNT (d4B Trust)
- What It Is: Funded with assets from someone other than the beneficiary, like parents or grandparents.
- Key Point: No payback clause is required, which makes this option a valuable way to leave a lasting legacy.
- Flexibility: There is more leeway in how assets can be used and distributed after the beneficiary’s lifetime.
Pooled Trust (d4C Trust)
- What It Is: A less common option where funds are pooled with those of other beneficiaries. A non-profit organization manages the trust while maintaining individual accounts.
- Who It Helps: This option is useful for families with limited resources who still want to provide proper support for a loved one with special needs.
Main Considerations When Setting Up a Special Needs Trust
Each step in creating an SNT is important. Here, we highlight the main points you should consider:
Consulting an Attorney with a Focus on Special Needs Trusts (Crucial First Step)
Working with an attorney who understands the rules for SNTs is essential. In California, SNTs are governed by Probate Code sections 3600-3613. An attorney will help ensure that your trust meets all state and federal requirements while keeping your loved one’s benefits intact.
Selecting a Trustee (and Possibly an Advisory Committee)
The trustee manages the trust, so choosing the right person is critical. Look for someone who is:
- Financially responsible
- Trustworthy
- Understanding of special needs
- Fair and impartial
You might also consider setting up an advisory committee to support and check the trustee’s decisions. For more complicated cases, a corporate or professional trustee might be the best option.
Funding the Trust
The trust can be funded from various sources. Some common options include:
- Gifting
- Inheritance
- Life insurance proceeds
- Structured settlements
As of January 1, 2024, the resource limits for most Medi-Cal programs were eliminated. This means that for many Medi-Cal programs, there is no longer a limit on how much money or other resources you can have and still be eligible.
However, this does not apply to Medi-Cal through SSI. If you are receiving Medi-Cal through Supplemental Security Income (SSI), the $2,000 resource limit still applies.
Drafting the Trust Document
The document itself must be thorough. When drafting it, it is important to include clauses such as:
- A spendthrift provision to protect the funds
- Details on how and when funds can be used
- Provisions for appointing successor trustees
- Specific examples of allowable expenses like therapies, adaptive equipment, or home modifications
- Trustee powers that let them pay service providers directly
- The mandatory payback clause for first-party trusts
Administering the Trust
Once the trust is in place, ongoing administration is vital. The trustee must:
- Avoid making direct cash gifts that could count as income
- Keep detailed records
- File any necessary tax returns
Protect Your Loved One’s Future: Contact Vistas Law Group Today
If you’re in California and are concerned about your loved one’s future, you don’t have to face it alone. With over 20 years of experience, Vistas Law Group is here to provide trust and estate guidance. An SNT is more than just paperwork—it’s a way of ensuring long-term care for those who matter most to you.
Reach out to discuss your family’s situation. Our team is ready to help tailor a plan that protects your loved one while preserving government benefits. Call 213-745-8747 (Los Angeles) or 951-307-9154 (Inland Empire), or contact us online for a free 15-minute consultation. Every family is different, and we’re committed to offering personalized advice—let’s work together to protect your loved one’s future.