If your family includes a member with special needs or disabilities, you may want to set up a special needs trust for him or her. There are two main types of special needs trusts, depending on whose property will be contributed to the trust.
Third Party Special Needs Trusts
Family members who want to contribute their own money or property for the support of a relative with special needs should set up a special needs trust to accept the funds. Well-meaning people often want to give directly to someone with special needs, but generally, this is not recommended.
Many people with special needs receive government benefits, including Social Security and Medicare. These programs have strict income and/or assets limits for recipients. If someone has too much income or too many assets, he or she risks losing the benefits. Outright gifts of money and property from relatives count against the income and assets limits.
Instead, you can create a third-party special needs trust with the person with special needs as the sole beneficiary. Special needs trust documents must contain particular language to meet requirements of federal law. A regular revocable or irrevocable trust is not the same thing as a special needs trust. If you properly create a third party SNT, your relative will receive support from the trust on an as-needed basis, while his or her benefits eligibility is protected.
First Party or Self-Settled Special Needs Trusts
In some cases, people with special needs require first-party (also called self-settled) special needs trusts. Usually, the need arises when a person with special needs receives a settlement or outright inheritance of money or property. In addition, someone with significant assets who then becomes disabled can place his or her assets in a first party special needs trust in order to qualify for government benefits.
Unlike third-party special needs trusts, which may be created by any family members or friends for the benefit of a person with special needs, first-party SNTs may be created by the person with special needs or someone close to him or her. These people include a parent, guardian, grandparent, or the court.
To receive the benefit of a first party SNT, the beneficiary should meet the government definition of “disabled” and be under age 65 when the trust is created and funded.
Planning your estate and need to set up a special needs trust in California? Look to Janet Brewer, Esq. for thorough and thoughtful estate planning advice. Janet’s more than 20 years of legal experience will give you confidence and peace of mind. To schedule a “Get Acquainted” meeting, visit Janet's website or call her office at (650) 469-8206.