If you live in California and have a special needs child who is receiving MediCal, Social Security Disability or other government benefits and is under the age of 65, you should consider setting up a Special Needs Trust in California. This type of trust is irrevocable, however, meaning that on your death none of the provisions may be changed. Consequently, this trust should only be established if your child is severely disabled, either physically or mentally. You could, though, simply create another trust if the original trust’s irrevocability is an issue.
To qualify for SSI and other public benefits, your disabled child may have no more than $2000 in assets in his or her name. By setting up a trust, the assets belong to or are owned by the trust and are not counted towards your child’s eligibility. When distributed, the funds are to be used only for those expenses not covered by other government benefits or for the child’s supplemental needs. For example, the money may not be used for housing, food or clothing if it already being provided for free.
There are 3 types of Special Needs Trusts:
- Family Special Needs Trust
This is the most prevalent and can be set up before you pass away or be created within your Will. If a living trust, anyone can fund it by depositing money into the trust or by naming the trust as a beneficiary in a Will. Parents can also take out a life insurance policy to fund the trust.
- Pooled Trust
This is a trust set up by a non-profit organization. The funds pooled are those of many different beneficiaries although each has their own account. It is managed by the nonprofit that disburses it and not by any named trustee that you can designate in a family trust. These trusts are typically for low income individuals. As a Special Needs Trust, the funds are for the child’s supplemental needs that are not already being provided.
- Court Ordered Special Needs Trust
If the disabled person receives an inheritance or court judgment or settlement, the funds may be ordered to be deposited in a court-ordered Special Needs Trust so that the individual may continue to receive their disability payments and other public benefits. Once the disabled person dies, any remaining funds must be paid to the state for any medical assistance provided after the trust’s establishment.
Information for the Trust
Your attorney can set up the trust with the following information that you can provide:
- Social Security Number of the beneficiary
- Sources of funding for the trust such as life insurance policies as well as account numbers and amounts, if known
- Medical diagnosis of beneficiary
- Specific needs of the beneficiary as well as personal habits, specific needs, favorite foods, particular abilities, what adaptive equipment is needed and other relevant personal facts
- Identifying information for the named trustee and alternate trustee
- Heirs to whom any remaining funds from the trust will pass once the beneficiary dies and Medicaid is reimbursed
Provisions in the Trust
The Special Needs Trust needs to be carefully worded regarding how the funds are to be used and should state that none will be for the beneficiary’s basic needs such as housing, food, medical care and clothing. Regarding housing, however, the trust funds may be used to buy a house that is to be rented to the beneficiary as well as furniture, adaptive furniture, any medical or health expenses not covered by public benefits, recreational equipment, trips, camps, computers, cameras, hair salon visits, movie or concert tickets, for travel companions and even emergency legal assistance.
You can also provide in the Trust that funds be used for special trips the beneficiary enjoys on a regular basis or to pay for items that can increase the person’s enjoyment of life so long as purchase of such goods, services or amenities do not put the individual at risk for losing eligibility for public benefits.
A Special Needs Trust in California can be a wonderful way of giving a disabled individual an enjoyable life by providing funds that can pay for recreational opportunities and other amenities that the individual may not otherwise have enjoyed. If you have a special needs child, talk to a trust and estate attorney about setting up such a trust.