What is a “Special Needs Trust?”by William J. Sweeney on 03/24/15
(Mr. Sweeney is an attorney licensed in California. The comments below are not intended as legal advice for any specific situation and may not accurately reflect the law in other jurisdictions. There may have been changes in the law since this was written. You should always consult an attorney in your own jurisdiction.)
A "Special Needs Trust" is a form of trust that typically is used to allow someone who is receiving federal or state assistance such as Supplemental Social Security Income (SSI) or Medi-Cal (Medicaid) to remain eligible by holding other assets in a trust under which they have no control.
Without such a trust, an individual receiving a lump sum of money as small as a few thousand dollars could be deemed ineligible for benefits until they exhaust the lump sum, at which point they would have to reapply for benefits. By creating a Special Needs Trust, the recipient has no control over the funds, and they are not counted as part of their assets. Such a trust cannot have any required distributions and the trustee must have absolute discretion as to how and when the funds are spent on behalf of the recipient. A required distributions could jeopardize receipt of Supplemental Social Security Income (SSI) and/or Medi-Cal.
The trustee should not use the funds to pay for what are considered the "necessities of life" such as food, shelter and clothing. These items should be paid for out of the government benefits.
The trustee can use the funds in the Special Needs Trust to improve the recipient’s living conditions by paying for special and supplemental needs, sheltering assets from the beneficiary’s creditor’s claims and from the demands of the beneficiary himself.
Needless to say, while a Special Needs Trust can be particularly beneficial in the right circumstances, it is a very technical area of law and should be prepared by a knowledgeable attorney. Failure to draft it properly could result in the loss of government benefits.
It is simple to address these issues to make sure your wishes are carried out by contacting an experienced attorney.
William J. Sweeney
Attorney at Law
915 Highland Pointe Dr., Ste. 250
Roseville, CA 95678