Special Needs Trusts

If a beneficiary of your estate is receiving, or is likely to receive, “needs based” services/benefits you might want to consider creating a “special needs trust” for his or her benefit. Typical examples of needs based services are Medi-cal, medicaid and SSDI. To be eligible for “needs based” services an applicant usually can only have a very small amount of assets available to pay for the services sought.

The purpose of the special needs trust is to avoid your gift to the beneficiary making the beneficiary ineligible for these benefits because they no longer qualify for the “needs based” because they now have assets available to pay for the services they receive (or seek).

The idea is that a settlor (trust creator) or settlors can have money in a trust for a person with “special needs” and the purpose of that trust is to make money available for the beneficiary for EVERYTHING OTHER THAN the services sought/provided as “needs based”.

Therefore, having no assets that can be used for those services, a beneficiary may be eligible for those benefits despite having funds “available” for other things at the discretion of a third-party trustee (i.e. the beneficiary cannot be the trustee).  Since it is not the beneficiary’s money, and they cannot control where that money goes, it typically cannot be used as a factor in determining eligibility.

Otherwise, the beneficiary may need to use all of his or her available assets (e.g. an inheritance) before they can become eligible for a program thereby impoverishing him or her and having little resources when/if the needs based benefits end.

It should be noted that the above is for special needs trusts created by a third-party (i.e. not created by the person receiving the benefits).  First person special needs trusts can be created, but only in limited circumstances, and typically by the court.

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