Parents who have children with special needs may not be aware that a special needs child who qualifies for, or is receiving, means-tested public benefits* (such as Supplemental Security Income, Medi-Cal, In-Home Support Services, and/or HUD housing assistance) may be disqualified from these essential benefits if the special needs child receives their inheritance directly; then the special needs child will remain ineligible for benefits until the inheritance funds are completely exhausted.
These families need to work with an estate planning attorney who has experience drafting Special Needs Trusts (SNT). The SNT will receive the inheritance (from the parents, as well as any other relatives who wish to leave a gift to the special needs child) instead of the special needs child receiving the inheritance directly. Although the money in the SNT is legally mandated to be spent for the child’s benefit, it is not considered an asset of the child, because the trust is irrevocable and the child has no power to withdraw funds directly or change the trust.
Both Medi-Cal and SSI recognize the SNT as a valid trust. The money in the SNT cannot be spent to replace benefits provided by means-tested benefit programs (such as housing and/or food, if the program is paying for these living expenses). Rather, the SNT is intended to supplement, but not supplant, means-tested public benefits. Put another way, the money in the SNT can be used to pay for services and accommodations greater than those provided by state or federal benefits programs.
If the SNT is created by a parent or grandparent of the special needs child, it is considered a “Third Party Special Needs Trust”. The advantage is that – unlike other types of SNTs (such as a First Party SNT, which is set up with the special needs child’s own assets, or a Pooled SNT, which is set up through a non-profit organization which acts as trustee), the Department of Health Care Services does not seek reimbursement for Medi-Cal benefits paid to the beneficiary of a Third Party Special Needs Trust after the death of the beneficiary. This means you can leave any money left in the SNT after the beneficiary’s death to another beneficiary.
Attorney Jennifer Hughes, experienced in drafting SNTs, gives a free 30 minute consultation to ascertain your specific estate planning needs in California. Please call 619-840-7797 to schedule your free consultation.
* “Means-tested” means that you can only own a limited value in assets in order to qualify for these public benefits.