A special needs trust is a type of trust that can be used to set aside resources for the benefit of a person with a disability without disrupting need-based government benefit eligibility. In this blog, we will look at some scenarios that would call for the creation of a special needs trust.
Direct Gifts and Inheritances
Let’s say that you have someone in your family who has a disability who is enrolled in the Medicaid program. Medicaid is a health insurance program, and it is only available to people with limited financial resources. in California, the program is called Medi-Cal. You would like to give this person a gift so that the loved one could enjoy a higher standard of living.
If you give a direct gift with no strings attached, you would be improving this person’s financial stature. As a result, ongoing eligibility for Medi-Cal coverage could be lost until the gift was spent.
Under these circumstances, you could go in another direction. You could create a special needs trust for the benefit of this loved one. The trustee could use assets in the trust to satisfy certain unmet needs. As long as the expenditures were within the guidelines, benefit eligibility would not be forfeited.
This type of trust is called a third party special needs trust, because the funding is coming for someone other than the beneficiary. When this type of trust has been established, Medi-Cal would not seek reimbursement from the estate of the beneficiary after his or her death.
Everything would be the same if you were to create a special needs trust when you are planning your estate to provide for someone after you pass away.
Self-Settled Special Needs Trusts
Sometimes a person with a disability will have his or her own assets. Under these circumstances, a legal guardian, a parent, or a grandparent could establish a self-settled or first party special needs trust for the benefit of the disabled individual. Under certain circumstances, the special needs trust could be established by a court order.
The beneficiary’s own funds would be used to fund the trust, and the trustee could use the assets to satisfy the supplemental needs of the beneficiary. These would be needs that are not being met by government benefits like Medi-Cal and Supplemental Security Income.
Ongoing eligibility for these benefits would not be impacted, and this is the benefit that would be gained. The bad news is that Medi-Cal would seek reimbursement from the estate of the beneficiary after his or her passing.
Free Report on Special Needs Planning
You have to act in a fully informed manner if you have a person with special needs in your family who is relying on need-based government benefits. If you would like to build on your knowledge, download our special report.
This in-depth report is being offered to our readers free of charge at the present time, and you can visit this page to access your copy: Sacramento CA Special Needs Planning.