Special Needs Trusts

A Special Needs Trust (SNT) is designed to preserve trust assets for the special needs of a disabled beneficiary without jeopardizing the beneficiary's public assistance benefits.

The purpose of a SNT is to protect a beneficiary's eligibility to receive government benefits (such as SSI and Medi-Cal) and still allow the beneficiary to benefit from the assets in a SNT. Thus, the SNT can provide for things not paid for by the government, such as a specially equipped van, additional medical care, a motorized wheelchair, vacations or entertainment.

  1. Discretionary Distributions: The trustee's payment for the special needs of the beneficiary must be discretionary; the payments cannot be mandatory. Careful planning and legal advice is important to guide the trustee and to prevent inadvertent disqualification from public benefits.
  2. Examples of Special Needs: Special needs which can be paid for by the SNT include: entertainment, recreation, movies, vacations, specially designed equipment for the beneficiary and medical costs not covered by Medi-Cal.
  3. Income Tax: A SNT is irrevocable and will have its own individual tax identification number; the trustee will submit annual fiduciary tax returns and taxes will be paid out of the SNT.

Who Benefits From a Special Needs Trust?

A SNT may be created by itself, or as part of a living trust. A SNT is useful in several situations:

  1. SSI/Medi-Cal (Supplemental Security Income). SSI is based on disability and financial need. SNTs can be used to provide additional funds for a beneficiary receiving SSI.
  2. SSDI/Medicare (Social Security Disability Income). The value of an individual's estate is irrelevant to SSDI qualification; thus, the purpose of special needs trusts for individuals on SSDI is different than for individuals on SSI.
  3. Long-Term Care Medi-Cal. Medi-Cal benefits provided for long-term care in skilled nursing facilities are based on financial need. SNTs can be used to provide additional assets or services for a beneficiary receiving Medi-Cal.
  4. Gifts. A SNT can be used as a vehicle to allow annual gift-giving by a parent or grandparent for the benefit of a disabled beneficiary.

If you have a family member or other loved one with a special need, such as a disability, inability to care for themselves or a drug addiction, a SNT may be the proper vehicle to meet your estate planning goals. Your living trust can include a SNT which will hold and manage assets for the disabled beneficiary following your death.