UNDERSTANDING THIRD-PARTY SPECIAL NEEDS TRUSTS
Feb. 21, 2022
If you have a loved one who is facing a disabling condition that will require the assistance of Medi-Cal and Supplemental Security Income (SSI) for medical, housing, and food benefits, the qualifications are strict.
An individual recipient of Medi-Cal or SSI must not have more than $2,000 in assets. Granted, there are exemptions for a home and a car and a few other necessities, but the $2,000 limit is strictly enforced.
The same qualifications apply for HUD housing assistance and In-Home Support Services (IHSS). Unfortunately, $2,000 is not a lot of money to cover the living expenses that these programs fail to provide for.
You can help provide for your loved one’s needs without jeopardizing their qualifications for SSI, Medi-Cal, and other services, and that is through the establishment of a special needs trust (SNT), also sometimes referred to as a supplemental needs trust.
Supplemental is the operative word in establishing an SNT. It must be focused solely on providing support that Medi-Cal and SSI do not. In other words, the SNT cannot fund medical services otherwise provided by Medi-Cal or for food and housing benefits provided under SSI.
If you wish to help care for a disabled loved one who is dependent on Medi-Cal, SSI, and other strictly enforced programs, contact the attorneys at The Elder & Disability Law Firm, APC. For more than two decades, they have proudly served clients in Redlands, California, including the nearby communities of Palm Springs, Rancho Cucamonga, and Riverside.
ESTABLISHING A THIRD-PARTY SPECIAL NEEDS TRUST
There are two types of special needs trusts, first-party and third-party. First-party means the disabled individual uses their own assets to fund the trust. Third-party means someone else establishes the trust with the disabled person as the beneficiary.
The major difference between the two, other than the funding source, is that Medi-Cal becomes the recipient of any assets remaining in a first-party SNT when the beneficiary dies. A third-party SNT can designate anyone to receive the remaining funds once the beneficiary passes away.
The major similarity is that both special needs trusts must be administered by an independent trustee, and the beneficiary can have no say in how the beneficiary distributes funds.
For parents or other relatives, or even friends, to help care for a disabled loved one, third-party trust is the only route. Any type of asset can be contributed to the trust – cash, securities, real property, jewelry, investment portfolios, anything of value.
Plus, anyone can contribute to the trust, not just the person or persons setting it up. However, the beneficiary cannot contribute to a third-party SNT. Doing so can disqualify the beneficiary from SSI and Medi-Cal.
The trustee can then use these funds for needs beyond what Medi-Cal and SSI provide for, including:
Dental, rehabilitative, and other health care services not provided by Medicaid
Caregiving and personal assistance
Computers, cell phones, television, appliances
Grooming, dry cleaning, clothing
Yard services, home security services
Accountants’ and attorneys’ expenses
USING A WILL OR A TRUST TO ESTABLISH AN SNT
If the loved one is living with you while you’re alive or is living alone, you can sometimes use your own funds to help provide for that person, but when you’re gone, an SNT and its trustee – often a bank or other administrator – can step in to fill the void.
You can use a will, or last will and testament, to dedicate your assets, in whole or in part, to the third-party SNT, but wills must go through probate court before assets can be distributed. This could take months, during which your beneficiary will be without supplement funds.
Instead, if you use a living trust, there will be no probate court proceedings, and assets will transfer directly to the special needs trust. It is also a good idea to have a will as a backup if you forget to assign specific assets to your trust. There will still be a delay, but the funds will eventually be earmarked for the beneficiary.
HOW AN EXPERIENCED ATTORNEY CAN HELP
A special needs trust must be established to meet all the legal qualifications so that the assets don’t end up disqualifying the beneficiary from receiving government benefits. Likewise, a will or living trust has to be carefully crafted to make sure assets go into the SNT dedicated to helping the beneficiary.
The attorneys at The Elder & Disability Law Firm, APC, are well versed and experienced in all aspects of estate planning, including special needs trusts. If you wish to take care of a loved one with a disabling condition who needs to stay qualified for Medi-Cal and SSI, contact the firm immediately. The team serves clients in Redlands, Palm Springs, Rancho Cucamonga, and Riverside, California.