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A guide to special needs trust in California

On Behalf of | Jun 2, 2023 | Trust Administration |

A special needs trust is a legal entity in California that holds financial assets on behalf of a disabled person. Its main purpose is to put a barrier between the individual with special needs and the assets they inherit or receive so that they can remain eligible for government benefit programs.

How a special needs trust works

Medicaid and Social Security provide invaluably needed resources to those with disabilities, enabling them to receive necessary medical care and living assistance. However, these government programs have very strict asset eligibility standards. The disabled person should have low or no income and minimal assets to qualify for services.

So technically, a special needs trust strips away all assets from the disabled person’s name and titles them in the trust. Through trust administration, the trustee will use those assets for the benefit of the special needs beneficiary without jeopardizing their eligibility for government benefits.

Types of special needs trust

Special needs trusts come in two main types: first-party and third-party trusts. In a first-party trust, the beneficiary is also the grantor. In other words, they are legally entitled to or own the assets which are in the trust.

On the other hand, someone else has to use their money to fund a third-party special needs trust. This could be a parent, grandparent, sibling or another family member, depending on who has the authority to make financial decisions for the disabled beneficiary.

Setting up a special needs trust in California

If you’re considering setting up a special needs trust for your disabled child or loved one, you should be aware of the following California rules and regulations:

  • A licensed attorney must draft the trust document.
  • The person creating the trust (the grantor) must be 18 or older.
  • A reputable medical institution must have diagnosed the beneficiary with a mental or physical disability that meets Medicaid or Social Security standards.
  • The trust must be adequately funded with the beneficiary’s assets or those of a third party.

A special needs trust can provide financial security, protect your loved one from exploitation and increase their independence. Therefore, it’s important to understand the rules and regulations involved in setting up a special needs trust so that you can make an informed decision about how best to provide for your loved one.