Special Needs Trusts

By Shima Kalaei, Esq.

As a parent of a child with a disability, you face many concerns about your child’s future.  You may worry about how your child will support him/herself as an adult, and how you can provide for your child over the course of his/her life.  Estate planning is especially important for parents of children with special needs.  It is essential for such parents to create Special Needs Trusts in order to ensure that their children are provided for in the future.

What is a Special Needs Trust (SNT)?
A trust is a legal document that allows one person (a trustee) to hold money, property and other assets for the benefit of another person (the beneficiary).  A special needs trust (also commonly referred to as supplemental needs trust) is a trust that is specifically created for the benefit of an individual with a disability and who qualifies for public benefits.  One is generally eligible for public benefits if his/her countable assets do not exceed $2000.

What is the purpose of a SNT?
A person found eligible for public benefits typically receives funds from government programs for basic needs, including food, shelter and health care expenses.  Such government programs that provide these basic supports are Supplemental Security Income (SSI) and Medicaid.  In addition to public benefits, disabled individuals may receive additional funds from family members and/or third parties.  However, these additional funds may jeopardize a disabled individual’s eligibility for continued public assistance since these funds are counted towards the $2000 maximum limit for countable assets.  Under these circumstances, a SNT, if created, protects and preserves public benefits since funds from a SNT cannot be used to provide the things that public benefits offer.  Rather, funds from a SNT must only be used to provide for “supplemental and extra care” over and above what the government provides.  Because a SNT provides support other than basic needs, funds within a SNT will not disqualify the disabled individual from receiving government benefits.

What is considered “supplemental and extra care” expenses?
Generally, permissible expenses include any items that are not used for food, shelter, or health care.  However, there are many caveats to this rule:

•Shelter: Though SNT funds cannot be used to provide shelter and basic utilities (gas, water and electricity), funds may be used for non-basic utilities (cable and telephone services).
•Health Care: SNT funds may be used to cover medical and health care costs not covered by Medicaid, including experimental medical treatments, medical equipment, vitamins, etc.
•Miscellaneous: SNT funds may be used for recreation, entertainment, vacation/travel expenses (including companionship, accommodations and meals), motor vehicle (including purchase, maintenance and insurance), furniture, electronics, personal care items and emergency legal costs.
•Other Prohibitions: The person who creates the trust may designate that SNT funds not be used for the purchase of certain items (e.g. alcohol) even though such items are considered supplemental expenses.

How is a SNT created?
SNTs are generally created in two ways.  First, a SNT may be included as part of a will.  This type of SNT is a testamentary trust, and it becomes effective upon the death of the person for whom the will was created.  Essentially, all assets under the person’s will are placed in the SNT.  Second, a SNT may be created independent of a will.  This type of SNT is a living (intervivos) trust, and it becomes effective immediately after its creation.  Unlike a testamentary trust, a living trust allows parents/third parties to continually add assets into the SNT during the beneficiary’s lifetime. Testamentary trusts only include the assets named under the will.

Why is it important to have a SNT rather than just a will or a general trust?  
If parents create a will that leaves property and financial resources to their child with special needs, this inheritance may affect the child’s eligibility for certain government benefits.  Depending on the amount, such an inheritance may make a disabled child ineligible for public benefits.  Even with a small inheritance, the amount may still not be sufficient to provide for the child’s lifelong needs.  Assets under a SNT, however, are not considered countable for purposes of qualification for certain governmental benefits.  Therefore, it is essential for parents to create SNTs to ensure that their child continues to receive government benefits, without interruption.

Does my child automatically qualify for public benefits if I create a SNT?
No.  Your child must qualify for public benefits regardless of the existence of a SNT.  In order to qualify for public benefits, your child must not have more than $2000 of personal assets under his/her name.  A SNT only functions to protect public benefits from being lost once eligibility is established.

What if my child does not qualify for public benefits?    
Even if your family has sufficient resources to provide for your child’s life without need of government assistance, a SNT is still important.  This is because assets under a SNT are free of creditors’ claims and/or seizures.  That is, should your child ever be sued, his/her assets will remain unaffected by a judgment against him/her.

Is there an obligation to reimburse the State for public benefits my child received?
Maybe. SNTs can be funded either by 1) parents/third parties, or 2) the disabled individual him/herself.  The assets under a SNT are subject to a repayment obligation only if those assets originally belonged to the disabled individual.  At the death of the disabled individual, the State may be reimbursed for an amount equal to the Medicaid used during the disabled individual’s lifetime.  A disabled beneficiary’s estate has no obligation to reimburse the State for public benefits if the SNT was funded by parents/third parties.

What if I leave money in my will to someone other than my child with special needs and designate that person to use the funds to care for my child?   
Removing or “disinheriting” your child with special needs from your will does not protect the assets intended for his/her benefit.  This is because the third party designated to hold the assets for your child is still at risk of judgments from lawsuits.  When this happens, the assets that were meant to benefit your special needs child may instead be paid to the judgment creditors of the third party.  A SNT will ensure that funds will only be used for the benefit your special needs child and not be subjected to the creditors’ claims of the third party.

When should I create a SNT?
It depends.  If a SNT is funded by the disabled individual him/herself, it must be established prior to the disabled beneficiary’s 65th birthday.  There are no age limits for a SNT that is funded by a third party.  However, in the latter case, it is recommended that a SNT be created early in a child’s life.  This is because once the individual is 18, eligibility for government programs are determined by the child’s own income – not of the family.  Should the disabled individual receive assets worth more than $2000, he/she will then be unable to maintain public benefits that provide for his/her most basic needs.

For more information on transition planning, preparing for an IEP or Due Process hearing or for assistance in these processes please contact:

Woodsmall Law Group, PC
2600 Mission Street, Suite 200
San Marino, CA 91108
(626) 440-0028


Leave a Reply

Your email address will not be published. Required fields are marked *