Special Needs Trusts

Providing for a person who suffers from a physical or mental disability requires special planning considerations.  Often times, if a person is disabled and receiving public benefits, any inheritance or gift received by such a person may disqualify the recipient from or cause a reduction of the benefit amounts.

A “special needs trust” is a type of trust that is designed to hold money (or any other asset) for the benefit of a person who is receiving federal or state benefits, without causing disqualification or reduction of such benefits.  This type of trust is often the most effective and safest way to ensure that a special needs individual is taken care of.

Often times, parents leave money outright to a special needs child through their will or trust.  The result of this (often unknown to the parent) is to cause the child’s governmental benefits to terminate or decrease.  Sometimes, a parent knows the effect of giving money to a child receiving governmental benefits.  When this is the case, often times the parent will leave such child’s share to a sibling or other “trusted individual.”  In doing so, the parent expects that the trusted individual will use such money for the benefit of the disabled child.  This procedure is very dangerous for several reasons.  The trusted individual is under no legal obligation to use the funds for the benefit of the disabled child and although not the intention, this person is free to use the money how he or she wants.  An additional concern is that any money left to the trusted individual can be used to satisfy any debts that the individual may have, whether such debt or creditor exists now or sometime in the future.

A properly drafted special needs trust will allow money to be used for a disabled individual, while allowing the individual to continue receiving public benefits.  The terms of a special needs trust generally provide that the trust will only make disbursements that supplement government assistance received by the individual.  The trust protects the governmental benefits by stating that trust assets are not to be used to replace any governmental benefits.

It is very important that any trust aimed at providing for a special needs individual be drafted correctly so that it complies with California and federal law.  In the unfortunate event that it does not comply, the effects could be a reduction or complete disqualification of public benefits for the special needs individual.

Bradley S. Erdosi is an attorney practicing in the areas of estate planning and probate and is also a preferred vendor for the Riverside Sheriffs’ Association.  For additional information, please contact him at www.willsandtrustslaw.com or by telephone at (949) 261-5777.
Special note:
This article is intended only for the purpose of providing general information and does not constitute legal advice.  By providing the information contained in this article, no attorney-client relationship is established and nothing contained in this article should be construed to necessarily be applicable to your unique situation.  You should always engage the services of an attorney to determine which, if any, legal solutions are right for you.