If you have a loved one with special needs, estate planning isn't just about passing on assets—it's about making sure they're taken care of for the long haul without accidentally messing up their benefits.
A lot of well-meaning parents, grandparents, and siblings make the mistake of leaving money directly to a family member with special needs. The problem? Many government programs like SSI (Supplemental Security Income) and Medi-Cal have strict asset limits. If your loved one suddenly inherits a chunk of cash, they could lose these critical benefits.
That's where a Special Needs Trust (SNT) comes in. It lets you provide for them without jeopardizing their eligibility for essential services. Let's break it down.
What Is a Special Needs Trust (SNT)?
A Special Needs Trust is a legal arrangement that holds assets for the benefit of a person with disabilities while keeping those assets from counting against government assistance eligibility. Basically, it's a way to provide extra financial support without interfering with benefits.
There are two main types:
1. First-Party Special Needs Trust
- Funded with the individual's own money (like a lawsuit settlement or inheritance they received directly).
- Has a Medicaid payback provision, meaning when they pass, the state can claim whatever's left in the trust to recover what was spent on their care.
2. Third-Party Special Needs Trust
- Funded with someone else's money (like parents or grandparents).
- No Medicaid payback requirement—leftover assets can go to other family members when the beneficiary passes.
For most estate planning situations, a Third-Party SNT is the best option.
Why You Shouldn't Just Leave Money to a Family Member to “Hold” for Them
Some people think they can avoid all this by just leaving money to a sibling or another family member, trusting them to take care of their loved one. Bad idea.
Here's why:
- The money legally belongs to that person—meaning it could be taken in a lawsuit, divorce, or if they run into financial trouble.
- There's no legal obligation for them to use it for your loved one's care. They might mean well, but life happens.
- It could create tax problems and complicate their own estate planning.
A Special Needs Trust ensures the money is actually used for your loved one's benefit.
What Can a Special Needs Trust Pay For?
Government benefits cover basic needs like food, housing, and medical care, but a Special Needs Trust can provide for everything else that improves their quality of life, including:
✔ Therapy, education, and job training
✔ Travel and entertainment
✔ A personal caregiver or special medical treatments
✔ Computers, assistive devices, and communication tools
✔ Recreational activities and hobbies
Basically, it helps maintain their quality of life while keeping their benefits intact.
How To Set One Up
Setting up a Special Needs Trust isn't something you should DIY—this is one area where getting it right the first time is crucial. A properly drafted SNT:
✅ Names a trustee to manage and distribute the funds
✅ Specifies how and when money should be used
✅ Avoids direct cash payments to the beneficiary (which could affect benefits)
The trustee can be a trusted family member, a professional trustee, or even a nonprofit organization that specializes in managing special needs trusts.
Don't Wait Until It's Too Late
If you're a parent or grandparent of a child with special needs, planning ahead is essential—especially if you're the primary caregiver. If something happens to you, a well-structured Special Needs Trust ensures they'll be provided for long after you're gone.
Estate planning for a loved one with disabilities takes extra care, but it's worth it. If you want to discuss the best way to protect your loved one's future, reach out—I'm happy to help.
LEGAL DISCLAIMER
This article is intended for general information purposes only. Any legal analysis or other content should not be construed as legal or professional advice or a substitute for such advice. No attorney-client or confidential relationship is formed by transmission of information. If you require legal or professional advice, please contact an attorney or other suitable professional advisor. The choice of an attorney or other professional is an important decision and should not be based solely upon advertisements and blog postings.
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