What is the Purpose and Benefit of a Special Needs Trust?

A trust is one of the most popular estate planning documents used by Californians. Trusts are preferred for their flexibility, customizable features, and ability to avoid the lengthy probate process, among other facets. 

There are many different types of trusts our firm helps Californians create and maintain; one of the most common is the special needs trust. A special needs trust is a legal arrangement wherein a disabled adult may receive an inheritance or other windfall of money WITHOUT losing vital government benefits. 

Why People Use Special Needs Trusts

Many disabled people are not able to work (and never have). This often means that these individuals rely on means-tested government benefits like SSI (Supplemental Security Income) and Medi-Cal. These benefits are classified as means-tested because the beneficiaries of such programs are only eligible if they do not otherwise have assets (or means) to pay for their basic needs. If someone has more than $2,000 in assets, for example, that person is not eligible to receive SSI.

However, just because someone you love receives government benefits does not mean they have to miss out on the inheritance you plan to bequeath them. By creating a special needs trust, you can be sure that your beneficiary receives their inheritance without having that inheritance count toward the asset limit that would otherwise bar them from receiving important public benefits.

How a Special Needs Trust Functions

A special needs trust must be irrevocable, which means the trustor (creator of the trust) is not allowed to change or revoke the trust except in special circumstances. Besides the beneficiary and trustor, there needs to be a trustee, who will make sure the trust’s instructions are carried out. The trustor of a special needs trust usually acts as the trustee until their death. The successor trustee is often a trusted friend, family member, or professional fiduciary.

What Might Happen Without a Special Needs Trust?

Let’s say that you have an adult son who is disabled and receives both SSI and Medi-Cal. Your son receives $900 per month in SSI while Medi-Cal covers his doctor’s appointments, prescription medications, and care-related transportation costs.

If you were to bequeath your son the $100,000 you intend to leave him without arranging for a special needs trust, he would lose the recurring income from SSI. Losing the monthly $900, however, pales in comparison to the medical expenses he must now pay out of pocket due to losing Medi–Cal eligibility. As a result, your son is forced to burn through the $100,000 in less than six months.

That scenario probably sounds catastrophic, but that’s exactly what estate planning is for. You plan to be around a long time for your loved one with special needs, but tomorrow is guaranteed for no one. As John F. Kennedy remarked, “The time to repair the roof is when the sun is shining.”

A special needs trust needs to be created alongside the guidance of a knowledgeable and experienced California estate planning attorney. Hedtke Law Group is committed to helping our clients achieve their estate planning goals and gain peace of mind. We look forward to being your advocate and guide.