There are different types of trusts that you can create that serve different purposes. One type of trust that is useful under certain circumstances is a special needs trust. A special needs trust is a trust that allows a disabled person to benefit from it, while still maintaining eligibility for government benefits for their disability.
The California estate planning attorneys at Galanti and Copenhaver have many years of experience creating different types of trusts for their clients, including special needs trusts. Contact our office today to schedule a consultation with one of our attorneys. We will meet with you and learn more about your financial situation and your goals so that we can create an estate plan that best suits your needs.
First-Party Special Needs Trust
There are two different types of special needs trusts that you can choose from when making estate plans. The first is called a first-party special needs trust. A first-party special needs trust is funded with assets that belong to the trust beneficiary.
An example of when a first-party special needs trust may be created is in a case where a person was severely injured and became disabled due to an injury caused by another party, for which they received a personal injury settlement or award. The injured person, who is now disabled, may use their personal injury settlement or award funds to create a special needs trust for which they will be the beneficiary.
Rules and Restrictions for First-Party Special Needs Trusts
There are some rules and restrictions that apply when setting up a first-party special needs trust. Both the State of California and federal law require certain provisions included in the trust, which require notice and payback of funds to the State of California when the trust beneficiary passes away, or there is an earlier termination of the trust. Additionally, the Department of Health Care Services (DHCS) is able to recover an amount from the trust funds that is up to or equal to the total cost of medical assistance that was paid out by Medi-Cal on the behalf of the beneficiary.
Two Categories of First-Party Special Needs Trusts
First-party special needs trusts are categorized as either a “pooled trust” or a (d)(4)(A) SNT. A pooled trust can be established for someone of any age who is disabled, while the other category of first-party special needs trusts must be for someone under the age of 65.
A pooled trust must be managed by a non-profit organization and involves multiple beneficiaries. A separate account is maintained for each beneficiary, but for investment purposes, the funds are pooled together.
Third-Party Funded Special Needs Trusts
You can also create a special needs trust for someone other than yourself, which is called a third-party funded special needs trust. To create this trust, you will put assets into the trust for the benefit of the trust beneficiary. The funds in the trust would be funds that the beneficiary did not have previous title or claim to. Third-party funded special needs trusts are also not subject to the recovery requirement by the Department of Health Care Services that first-party special needs trusts are.
A third-party special needs trust may either be established during the lifetime of the grantor (creator of the trust) or it can also be created to go into effect by the terms of the grantor’s will once the grantor passes. Typically, a family member, or someone who cares for the disabled person who is to become the beneficiary, will create the trust in order to protect them and take care of them, while still allowing the beneficiary to remain eligible for government benefits that may currently be in place, or that may become available to them in the future.
Drafting the Terms of a Special Needs Trust
In order to protect the disabled beneficiary’s right to current and/or future benefits, the terms of the special needs trust must be carefully drafted. The wording of the distribution terms of the special needs trust must include generally accepted distributions, which include funds allocated for things like reasonable caretaking costs, medical services that are not covered by government programs, medical equipment that is not covered, reasonable fees for the trustee, and many other distributions.
You and your attorney will go over what may or may not be acceptable distributions from the trust in your case. Since special needs trusts must be carefully drafted, it is crucial to hire a California estate planning attorney with experience successfully drafting special needs trusts. Contact us today at Galanti and Copenhaver to get started creating a special needs trust that meets your needs.
