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Special Needs Trusts

What is a Special Needs Trust? A Special Needs Trust is a special kind of trust which holds title to property for the benefit of a child or adult who has a disability. The Special Needs Trust can be used to provide for the needs of a disabled person to supplement benefits received from various governmental assistance programs including SSI and Medi-Cal. A trust can hold cash, personal property, or real property, or can be the beneficiary of life insurance proceeds.

"Special Needs" Defined

Special needs refers to the requisites for maintaining the comfort and happiness of a disabled person, when such requisites are not being provided by any public or private agency. Special needs can include medical and dental expenses, annual independent check-ups, equipment, programs of training, education, treatment, and rehabilitation, eye glasses, transportation (including vehicle purchase), maintenance, insurance (including payment of premiums of insurance on the life of the beneficiary), and essential dietary needs.

Special Needs Trusts may also include spending money, electronic equipment such as radios, CD players, television sets, and computer equipment, camping, vacations, athletic contests, movies, trips, money to purchase appropriate gifts for relatives and friends, payments for a companion, and other items to enhance self-esteem.

Common Questions About Special Needs Trusts

Does the Social Security Administration Allow Special Needs Trusts?

In 1975 the Social Security Administration established rules allowing assets to be held in trust for a recipient of SSI as long as the disabled beneficiary

1. cannot control the amount or the frequency of trust distributions and

2. cannot revoke the trust and use the trust assets for his or her personal benefit.

The Social Security Administration's handbook Understanding SSI states:

"A trust can be set up for an SSI beneficiary."

Who can establish a Special Needs Trust?

Parents (or other family members) of a disabled child can establish a Special Needs Trust as part of their general estate plan. The parents can "pour-over" that child's share of their estate into this special trust and not worry that their child will be prevented from receiving benefits when they are not there to care for the child.

A disabled person who expects an inheritance or other large sum of money may establish a Special Needs Trust. Receipt of these funds might otherwise disqualify them from public benefits. In many situations, a trust can also be established after the disabled person has received an extraordinary amount of money, though a court order may be necessary.

Who will manage the trust assets?

The manager of a trust is called a "trustee". It can be any person over eighteen years of age, a bank, a financial planner, CPA , or a professional fiduciary. The trustee holds, administers, and distributes all property allocated to the trust for the benefit of the disabled person during their lifetime.

Who can serve as Trustee?

In most circumstances when a Special Needs Trust is established by parents for the benefit of a disabled child, those parents serve as the trustee until they die or become incapacitated. When that occurs a successor selected in advance by the parents or person establishing the trust continues to serve according to instructions contained in the trust.

Can the disabled person serve as trustee?

No. The whole premise of a Special Needs Trust is that the disabled beneficiary shall not be considered to have access to principal or income of the trust. The assets of the trust are for the benefit of the disabled person. However, the disabled person has no power or authority to direct the payment of funds.

What is placed in the trust to establish it?

Any kind of asset may be held by the trust. Holding title by the trust is a simple process of putting the title to that asset in the trust's name. Many times a trust has no assets put into it until the death of the settlor. The Special Needs Trust in that case is an empty shell waiting for a future event. It is prudent to place some assets into the trust and begin using the trust immediately, but it is not required.

Can Additions be made to the Trust?

Yes. Additional property may be added to the Trust at any time by the Settlor, or any other person. Additions may be made by gifts during life, by will or living trust, by life insurance policies, employee plan benefits, or retirement plan benefits.

Are Special Needs Trusts Confidential?

Yes. If the Settlor desires, the Trust can remain confidential to all persons.

Can a Special Needs Trust be used by recipients of settlements or personal injury awards?

Yes. On January 1, 1993 the California Legislature specifically exempted personal injury settlements as "available resources" in terms of maintaining public benefits with court approval. The new legislation allows the court to authorize the creation of a Special Needs Trust where a minor or disabled person is to receive funds pursuant to a compromise or court judgment. The assets are not deemed available for purposes of Medi-Cal eligibility. The trust protects the award for use in the future for the special needs of the disabled person.

Stephen Dale can assist in working with the settlement as it is being structured in order to avoid loss of public benefits. It is also possible to work with a settlement which is already established.