A special needs trust (“SN Trust”) is a trust created for a beneficiary who is physically or mentally disabled to help the beneficiary live life and possibly to preserve his or her government assistance benefits like Social Security or Medi-Cal. This type of trust answers a parent’s question of what will happen to their child when they are no longer around. Some government assistance programs are based on financial need, so if someone with a disability receives a huge inheritance he or she will no longer qualify for certain government assistance. What is heartbreaking is that once the disabled person runs through the inheritance he or she will have nothing to fall back on.
The physically or mentally disabled person may not have the mental capacity to handle their financial affairs. The SN Trust would prevent a person with diminished physical or mental abilities from financially destroying themselves. The money protected in the trust can be used to pay for things like vehicles or transportation, insurance, check-ups, an attendant for personal care, recreation equipment, trips or outings, nourishment analysis and meals, individualized care and more.
The SN Trust is a separate entity and is not controlled or owned by the disabled beneficiary. The SN Trust is handled by the trustee (person who is appointed to ensure the terms of the trust are carried out). The trustee will ensure the beneficiary is taken care of. The SN Trust may use the assets of the trust to help with the daily life of the disabled beneficiary like paying for their transportation or utilities. If the trust provides cash payments to the beneficiary it may be counted as income and may disqualify the disabled beneficiary from receiving government assistance or result in receiving less assistance.
There are two types of SN Trusts: first person SN Trusts or third person SN Trust. A first person SN Trusts is a trust that is created by a person that has a disability and the trust assets are used to benefit him or herself. One example is when a person with a disability has won a judgment against someone else. The person would then use the judgment proceeds to fund the SN Trust for their own benefit. A third person SN Trust is a trust that benefits a third party and not set up and funded by the person who benefits from the SN Trust.
