Special Needs Trust
What is a special needs trust (SNT)?
It is a type of irrevocable trust that limits the trustee’s discretion as to the purpose of the distributions and has specific language restricting distributions so that the distributions supplement, but not supplant, sources of income including SSI or other governmental benefits.
What are the reasons to create a Special Needs Trust (SNT)?
Special Needs Trust is used by people who have a special needs child. If you leave your property to your special needs child without creation of such trust, your child will most likely become ineligible for any government help and your assets might be depleted very quickly. If you leave your property to your trusted person hoping that such person would take care of your child, it is possible that your assets will be lost in a process of divorce or will go to such person’s heirs in case of his or her death. Having a special needs trust, on the other side, will allow your child to continue to receive governmental financial and medical help for all necessary needs and to use your property on the child’s additional needs, such as travel, entertainment, etc.
Types of Special Needs Trusts
SNT can be (a) first party trust (the trust created with the intended beneficiary’s own assets), (b) third party trust (the trust created for the benefit of a person with a disability and is funded with someone else’s assets) or (c) pooled trust (trust established and managed by a nonprofit entity).
What are some of the requirements for the first party special needs trusts?
- Can only be created for the benefit of an individual who suffers from a disability and is under the age of 65 at
the time of creation of SNT. The trust remains protected after the 65th birthday, but no additional assets can be added to the trust on or after that date. The beneficiary may not establish his or her own trust.
- Can only be created by a parent, grandparent, legal guardian or conservator of the beneficiary or by court order.
- Creation of such trusts should be considered only when the public benefits are needs-based, e.g., SSI, Medi-Cal, Section 8 housing assistance, veteran’s benefits, and IHSS. There is no need for a SNT when the beneficiary only gets SSDI, Medicare, pensions, and employer-provided care insurance.
- The trust must be irrevocable.
- It must provide for reimbursement to Medi-Cal (up to an amount equal to the total medical assistance paid on behalf of the individual).
What is a Litigation Special Needs Trust?
It is a type of a first party trust. Litigation SNT usually created in connection with a personal injury or medical malpractice cases, when the injured person is going to receive an award to compensate him or her for his or her injuries. In California, such trusts are subject to court approval and ongoing court supervision.