How to Set Up a Special Needs Trust, California

A special needs trust will allow you to set aside money for the future care of a loved one with a disability while protecting their eligibility to receive benefits from the U.S. government. In this article, you will learn how to set up a special needs trust, California

How to Set Up a Special Needs Trust

It is a way for parents, family members, and other interested parties to contribute funds for the benefit of a special needs person while allowing that person to still receive government benefits such as Medicaid (California’s Medi-Cal) and Social Security Supplemental Income (SSI), vision, dental, and recreation benefits.

The special needs trust helps protect the beneficiary from financial abuse and provides the control needed to make sure the funds are spent wisely on his or her behalf.

Related: Learn more about special needs trusts

Why A Special Needs Trust is a Good Idea

As a caring parent, relative or interested friend, you want to make sure your special needs person has the services he or she will require.  You want to make sure the trust you set up is the right one, and that it will not jeopardize that person’s ability to receive necessary government benefits in addition to the trust benefits.

The wrong trust may diminish government benefits and it almost certainly will not anticipate all the possible issues that can arise over the lifetime of the beneficiary. The right trust will ensure that the beneficiary has a chance at a more fulfilling life, even after you are gone.

The special needs trust should still allow the beneficiary to qualify for SSI and other programs that pay for hospitalization, treatment at medical centers and clinics, doctors’ services, lab tests and X-rays, home health or nursing home health care, and related services.

The trust should also complement benefits from the Affordable Care Act (ACA), which typically covers community mental health, drug abuse services, and facilities for the mentally challenged.

Deciding How Much to Put in a Trust

How much to put into a trust is a good question. It depends on the nature of the special needs and the level of care needed, as well as the complexity of the trust. The amount put into the trust could be in the thousands to millions of dollars. There is no minimum sum required to open a special needs trust, but because the cost of setting up and managing the trust could run upwards into the thousands of dollars also, it has been suggested by some experts that the minimum amount to fund a trust should be about $100,000.

Who Can Set Up a Trust/the Different Kinds of Trusts

There are different types of special needs trusts. The most common are called first-party and third-party trusts and the difference depends on who is funding the trust. First-party trusts are originally funded by the property of the beneficiary him/herself. These trusts can be set up by adults who accumulate wealth and assets before the onset of a disability.

Assets can come from personal injury awards, retirement plans, divorce settlements, insurance policies, an inheritance, or other similar sources. First-party trusts must include certain federal and state provisions, and can only be established for individuals under the age of 65.

Third-party trusts are funded by someone other than the beneficiary. They are typically set up by parents or family members to benefit children. The funders are the original trustees who leave money, property or other assets to the trust through an estate plan. So, while the assets never belong(ed) to the beneficiary, the intention of the trust is that the benefits will be used for the beneficiary’s needs.

There is another kind of trust called a pooled-asset trust. These are available in most states and are charitable pools that allow assets to be given to the trust on behalf of multiple beneficiaries. The resources of a pooled trust are managed by a nonprofit organization.

Unlike individual special needs trusts, pooled trusts may be created for beneficiaries of any age and also may be created by the beneficiary him/herself.

Assembling an SNT Team – Involve the Whole Family

Setting up a special needs trust calls for expert help to make sure the complex rules of a special needs trust are carefully followed.  Attention should be paid to the special needs person’s financial resources to make sure they don’t exceed the limits for government benefits.

Families that are planning to create a special needs trust should start by taking stock of the special needs person’s current – and future – health status and ability to take care of him/herself. What is the level of future care that will be needed?

Begin by gathering information on financial assets including investment accounts, retirement policies, and insurance policies. Together, decide the best way of funding the special needs trust.

Family members should also make sure that any bequeathals, gifts, or other money transfers go to the special needs trust rather than directly to the special needs’ individual. Giving money directly to the special needs person can result in them receiving decreased government benefits. This can be easily avoided.

Hire an attorney who specializes in trusts and/or estate law. The complexity of the law, the legal documents required, and the processes involved necessitate qualified legal help. Social Security laws are often modified. A special needs trust is not a set-and-forget solution but one that should be constantly monitored and managed.

A financial planner should also be involved in the setting up of the trust. Often the attorney is experienced in financial planning and can combine the roles. If not, a qualified planner can be recommended.

When you or your family choose someone to serve as a trustee, keep in mind that the trustee will have complete control over the trust. S/He will oversee discretionary spending money on your loved one’s behalf. Your special needs beneficiary will have no control over the money or property in the trust. The trust will end when it is no longer needed, either upon the beneficiary’s death or after the trust funds run out. Choosing a special needs trust and setting it up properly is the best thing you as a parent can do for your special needs’ dependent.