Special Needs Planning

Special Needs Trusts (also known as Supplemental Needs Trusts) allow money or other assets to be set aside for the benefit of a disabled person without causing them to lose, or be disqualified for, government benefits.  These Supplemental Needs Trusts can generally be divided into three categories: Third Party Special Needs Trusts, First Party Supplemental Needs Trusts and Pooled Trusts.   

Third Party Trusts (third party special needs trusts) are created by anyone other than the disabled person and can only be funded with money or assets belonging to someone other than the disabled person.  Third Party Trusts have the greatest flexibility and are sometimes known as Family Special Needs (or Family Supplemental Needs) Trusts.

First Party Trusts are usually set up by a Parent, Grandparent or Court using funds being received by or for the disabled person.  These First Party Special Needs Trusts are also known as D4(a) trusts under the Federal legislation (42 USC 1396(d)(4)(a)) authorizing their creation. 

Pooled Trusts are created by groups or organizations and manage the funds of multiple individuals with special needs.  Pooled Trusts are often utilized for disabled individuals who either have a very small amount of funds to preserve or who lack trustworthy family members to manage a Trust.

In addition, Self Settled Income Only Trusts are used in benefits planning for disable and potentially disabled Seniors.  Those trusts are not discussed on this page.

Third Party Special Needs Trusts

(also known as Supplementary Needs Trusts)

If you currently provide care for a child or loved one with special needs (such as mental or physical disabilities), you probably have thought about and worried about what will happen to them when you are no longer able to provide and care for them.

You are aware of how much the basics cost.  You know how difficult and expensive it could be to replace your personal care and watchfulness.  You have come to know that many programs which are available to make a disabled person's life safer or easier are only available through government programs and cannot be privately obtained at any cost.  Supplemental Security Income (SSI) and Medicaid / Medi-Cal programs provide only for the bare necessities such as food, housing and clothing.  You wonder whether these programs will continue or whether deficits and budget cuts will make them disappear.

You want your loved one to have more than the necessities.  You want to enhance their life - for so long as they live.  The amount you can set aside or leave behind to care for your child or loved one is limited.  If no public programs are available to provide care, the money and assets left behind will be spent on the basics until gone.  Then, when the funds you have left behind have been spent down and are gone, you hope that the basics are still available through public entitlements.  'Hoping and praying' that other money will be there is just not acceptable.

You want to enhance the special needs person's standard of living for their entire lifetime.  Only through the use of a Special Needs Trust can you provide for your loved one while maintaining their eligibility for basic care programs, Supplemental Security Income (SSI) and Medicaid / Medi-Cal.  With this combination of public benefits, and the support you can set aside or leave behind, a disabled person can live a richer, more secure and more comfortable life.

This can be achieved because the Federal government has established rules allowing assets to be held in trust for a disabled person in a so-called  “Special Needs” or “Supplemental Needs” Trust.  So long as certain requirements are met, the assets within these trusts do not count as assets belonging to the disabled person for SSI and Medicaid/medi-Cal purposes.

The Attorneys in our firm can help you set up a Special Needs Trust so that government benefit eligibility is preserved while at the same time providing assets to meet the additional and supplemental needs of the person with a disability (those that go beyond food, shelter, and clothing and the medical and long term supports and services of Medicaid). The Special Needs Trust can fund those additional needs. In fact, the Special Needs Trust must be designed specifically to supplement, not replace public benefits. Parents should be aware that funds from the trust should not be distributed directly to the disabled beneficiary. Instead, they should be disbursed to third parties who provide goods and services for use and enjoyment by the disabled beneficiary.

The Special Needs Trust can be used for a variety of life-enhancing expenditures without compromising your loved ones’ eligibility such as:

  • Annual check-ups at an independent medical facility
  • Attendance at religious services
  • Supplemental education and tutoring 
  • Out-of-pocket medical and dental expenses
  • Transportation (including purchase of a vehicle)
  • Maintenance of vehicles
  • Purchase of materials for a hobby or recreation activity
  • Funds for trips or vacations
  • Funds for family members to come and visit
  • Funds for entertainment such as movies, shows or ballgames. 
  • Purchase of goods and services that add pleasure and quality to life: computers, videos, furniture, or electronics
  • Athletic training or competitions
  • Special dietary needs
  • Personal care attendant or escort

California allows Third Party Special Needs Trusts to be set up with great flexibility.  Provisions in the Trust can allow a Trustee to make a distribution which can cause an increase in share of cost or temporary disqualification if in the Trustee's judgment doing so is in the best interests of the disabled person.  In addition, modern trust drafting also allows us to include, in the trust, checks and balances to monitor the Trustee's actions and allow intervention without court action.  We can also divide the Trustee role so that a person other than your hands-on Trustee can manage the investments and finances of the trust to protect the legacy you have left behind.

Third Party Special Needs Trusts (or Supplemental Needs Trusts) can be drafted as either stand alone trusts or as components within your existing living trust.  For families who can set aside substantial assets to care for a disabled family member early planning can provide an opportunity to reduce current income taxes while putting aside a secure nest egg insulated against the unexpected.

First Party Special Needs Trusts

(Also known as Pay-Back Trusts or d(4)(A) Trusts)

The Government has been very kind in allowing parents and other third parties to put their own money into trusts to enhance the lives of disabled persons.  They have not been quite as kind in allowing disabled individuals to put their own money, or funds they are receiving because of a lawsuit or injury settlement away for their own future use.  The Federal legislation authorizing these types of trust is found in 42 USC 1396p (d)(4)(A).  For this reason they are sometimes referred to as d(4)(a) trusts.

Three Hurdles

The first hurdle making d(4)(A) trusts more difficult is that they are only authorized for individuals under age 65.  The second hurdle making first party trusts more difficult is that they must be established by a parent, grandparent, guardian or by a court.  The third hurdle is that the Federal Legislation provides that after the disabled person's death anything which is left in a First Party Special Needs Trust must be paid over to the State to the extent that the State has paid medical expenses for the disabled person during their lifetime.   This third hurdle is sometimes called the "Pay Back" provision.

The most common use for First Party Special Needs Trusts is to receive and protect litigation proceeds.  It is also sometimes used when a disabled person directly receives an unplanned for inheritance thereby reducing the beneficiary's potential disqualification down to a single month and making the inheritance available for their supplemental or special needs throughout their lifetime.

Attorney Joel Weissler and his staff regularly work with other attorneys, disabled persons and their families to establish First Party Special Needs Trusts to maximize the benefit a disabled person can get from their inheritance or lawsuit settlement.

Pooled Trusts

Pooled Trust are established by non-profit organizations.  Each Pooled Trust has its own rules.  Under a pooled trust arrangement individual accounts are set up for each beneficiary who have 'joined' the trust.  Each beneficiary receives special needs distributions from their own 'fund'.  Investments for the various funds are usually pooled giving the beneficiary's greater access to more sophisticated and stable investment management then would have been available to most first or third party trusts.

Pooled trusts are the statutory solution designed to help disabled individuals who are receiving a lump sum of money and cannot affordably establish a First Party Special or Supplemental Needs Trust.  This regularly happens when an injury settlement is reached without a lawsuit having been filed and the injured person no longer has a surviving parent or grandparent.  Pooled trusts are also very advantageous for individuals receiving funds which are less than the amount to cover the costs of establishing and maintaining a First Party Special Needs Trust.  Finally, Pooled Trusts are useful for families who wish to provide for a loved one and are unable to find an acceptable trustee or unable to afford to pay a professional trustee.

Although all of a beneficiary's 'fund' within a Pooled Trust can be used for that beneficiary's supplemental needs some pooled trusts limit fund investments avoiding holding assets like a home for the use of a beneficiary.  For this reason it is important to compare pooled trust programs to find the best fit for a particular beneficiary's circumstances.

When appropriate, our firm, the Weissler Law Group, helps individuals understand pooled trust joinder agreements and help families select the right trust from amongst the growing number of pooled trusts available to the public.

Guidance For Trustees

We provide guidance for Special Needs Trust Trustees.  If you are the Trustee of a trust designed to protect a disabled person's public benefits (including Medi-Cal or SSI benefits) you need to understand the asset and income rules which apply to the various programs.  Follow this link to our Guidance for Special Needs Trust Trustees.

The Attorneys of the Weissler Law Group assist clients in San Diego, California as well as in: Coronado, Pacific Beach, Del Mar, Solana Beach, La Jolla, Del Cerro, La Mesa, Lemon Grove, Santee, El Cajon, Rancho Bernardo, Poway, Escondido, National City, Spring Valley, and Chula Vista.

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