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California Special Needs Trusts

There are many parents out there who have children with disabilities such as Autism, Down syndrome, blindness and other medical conditions that make it a necessity for these children to receive Supplemental Security Income (SSI) and Medi-Cal, California's version of Medicaid.

Due to the fact that SSI and Medi-Cal are needs-based government benefits, a disabled child can lose those benefits if they receive an inheritance that makes them ineligible because it exceeds the eligibility threshold. However, with a special needs trust, this type of trust can hold assets and distribute payments to the disabled child while preventing him or her from disqualifying for SSI or Medi-Cal.

Although the disabled child is named a beneficiary of the trust, the assets held in the trust are not counted as his or her available resources because those assets are not within their control. For this reason, a disabled child can have millions of dollars in a special needs trust and they can still qualify for the means-tested SSI or Medi-Cal.

Almost all children with Autism or Down syndrome or another significant disability require a special needs trust because they need to remain eligible for SSI and Medi-Cal either during childhood or adulthood. Once a special needs person qualifies for SSI, the federal needs-based program, they automatically qualify for Medi-Cal. Being qualified for Medi-Cal is critical because income from SSI is not enough to meet an individual's minimum needs. Since Medic-Cal can pay for hundreds of thousands of dollars in medical expenses for the special needs child before and after the parents' deaths, without Medi-Cal paying these expenses, such medical costs could otherwise drain a sizeable amount of assets from the child's family.

While we may die in a tragic plane accident or while boating along the Niagara River, we're more likely to die within a few miles from home in a far less exciting manner. Since we can't predict when we will die, it's better to establish a special needs trust sooner than later. Hypothetically speaking, if a parent does not establish such a trust and their disabled child inherits $300,000, not only could their child waste everything that he or she is given, but the child's assets would far exceed the limits for the SSI and Medi-Cal programs and the child would be disqualified from those programs and no longer receive benefits.

Instead of bequeathing assets in a traditional will, the parents can establish a third party special needs trust. This trust would not be within the child's control and the child could not revoke it or use the trust assets for his or her own purposes. The trust would own various assets that could be used by the child but since the child doesn't actually own those assets, they are not counted against him or her. The trust could pay for uncovered medical expenses, education, clothing, entertainment etc. without affecting the child's eligibility for government benefits. However, the trustee would not make cash payments to the child because such payments would be counted as income for the beneficiary and could result in the loss of government benefits.

One of the benefits of the third party special needs trust is that there is no obligation to notify the state or pay back Medi-Cal payments after the beneficiary's death since the beneficiary didn't technically own those assets.

If you are considering establishing a third party special needs trust for your disabled child, we encourage you to pick up the phone and contact our Whittier estate planning attorney Mary E. Mullin. We can be reached at (562) 283-5507 to schedule a free case evaluation.