JDA badge
The Great Seal of the State of California
State Bar of California

Special Needs Planning

Children with special needs are often enrolled in means-tested governmental benefits. Receiving an inheritance without proper special needs planning can destroy their eligibility for these critical benefits. Special needs planning; however, is about more than maintaining eligibility for governmental benefits. The objective of proper special needs planning is to optimize a beneficiary’s quality of life. If you have a special needs child and want to create an inheritance plan that preserves his or her eligibility for government benefits, you should speak with a qualified Orange County Special Needs Attorney.

Trusts Explained

A trust is a form of ownership of property. It is a legal document that allows an authorized person, a trustee, to manage the property for the benefit of another, the beneficiary. The trustee is required to follow the instructions contained in the trust document that explain how the trust’s funds are to be spent on the beneficiary’s behalf.

Special Needs Trusts

In the special needs context, trusts are referred to either as first party special needs trusts or third party trusts. A first party special needs trust is one that the beneficiary creates for herself with her own money. This may occur when a disabled individual receives an inheritance, money from a personal injury or medical malpractice claim. A third party special needs trust is created by an individual for the benefit of another. An example of a third party trust is when a parent or grandparent creates a trust for the benefit of a disabled child.

First party special needs trusts and third party special needs trusts are different in some important ways that affect how they must be drafted, funded, and administered.

For example, first party special needs trusts must include federal and state provisions that require notice and payback to the State upon the death of the trust beneficiary or earlier termination of the trust. The California Department of Health Care Services is required to recover up to an amount equal to the total medical assistance paid by Medi-Cal (California’s Medicaid program) on the trust beneficiary’s behalf.

Two Types of First Party Special Needs Trusts

First party special needs trusts have special eligibility rules under applicable law and have two types. The first type may only be established for a disabled individual under the age of 65 (these are referred to 42 USC 1396p(d)(4)(A) or “(d)(4)(A)” trusts). The second type is known as a first party pooled trust (established under 1396p(d)(4)(C)). A first party pooled trust may be set up for a disabled individual of any age but must be established and managed by a non-profit association. Each beneficiary of the pooled trust has a separate account; however, funds are pooled for investment purposes.
Third Party Special Needs Trusts

Third party special needs trusts are not subject to recovery by the California Department of Health Care Services. These trusts must be carefully drafted and properly administered by the trustee because improper distributions, for example, trust funds distributed directly to the beneficiary will reduce his or her supplemental security income or SSI on a dollar for dollar basis. Other improper distributions may result in a one-third reduction of SSI benefits. The key here is proper trust drafting that preserves benefits eligibility yet provides the trustee enough flexibility to adjust if circumstances change.

Naming a Trustee

Choosing a trustee can be one of the most difficult aspects of special needs planning. Parents typically appoint co-trustees like a professional trustee, bank or law firm along with a family member. Together the co-trustees work to provide for the disabled child’s needs. Sometimes the size of the estate does not justify the expense of a professional or institutional trustee (banks often demand high dollar asset values).

In the event of a modest estate, a family member trustee may hire attorneys, accountants, and investment advisors to assist with trust administration. Another option is the pooled trust arrangement described above.

Funding the Trust

Some thorny questions arise when it comes to deciding how to fund special needs trusts.

  1. How much money is necessary to support your disabled child over the course of his life?
  2. Should all your children receive the same size gift regardless of their needs?
  3. How will you make sure there are enough assets?

The first question may require the assistance of an experience financial adviser with the necessary skill to these make projections. It’s always better to error on the side of more rather than less. Leaving equitable gifts will preserve family harmony and splitting your estate equally will reduce the threat of trust related litigation. You may consider creating equal gifts for your children but using life insurance to supplement the amount distributed to the special needs trust. The earlier you plan, the more inexpensive the premiums. For married couples, there are policies available that provide lower premiums if the policy only pays out upon the death of the second spouse.

Assistance is Available

At the Law Office of Jonathan D. Alexander, we assist our clients with special needs children to navigate these difficult issues. We understand that this process may be overwhelming. Our team will take the time to understand your concerns and wishes for your children and answer all your questions. Call now to discuss your special needs trust questions with an Orange County Estate Planning Attorney. We offer consultations so that you can learn about our firm and how we can help you protect what matters most. Start the planning process today by calling us at (949) 334-7823.

Client Reviews

The pandemic had me thinking very seriously about my outdated Will, I contacted the Law Office of Jonathan D. Alexander and he quickly eased my mind about all of the details of my estate and outdated will. He handled every detail from end to end and I was able to complete my Living Trust with no...

Joanne T.

I am so grateful to have been able to work with Jonathan. I knew I wanted to have a Living Trust and I had no idea what to expect going into the process. Jonathan was easy to talk to and explained the process thoroughly of what was required. He was patient with my multiple questions and replied in a...

Google reviewer

Get in Touch

  1. 1 Dedicated Representation
  2. 2 Virtual/Online Meetings
  3. 3 Protect What Matters Most
Fill out the contact form or call us at (949) 334-7823 to schedule your consultation.

Leave Us a Message