A special needs trust is a way to provide support for a person who is physically disabled, mentally disabled, or chronically ill without reducing their eligibility for public assistance, such as Social Security, Medicare, or Medicaid. Special needs trusts are irrevocable. Two options are available: first-party and third-party special needs trusts (SNT). The simple distinction between a first-party SNT and a third-party SNT is that the first party is funded by assets that belong to the beneficiary and the third party is not.
A special needs trust can be set up as part of your estate plan to go into effect on your death or can be effective immediately to help the beneficiary now.
In California, first-party SNTs must include federal and state provisions and are repaid to the state when the beneficiary dies. The Department of Healthcare Services legally must recover up to an equal amount of the total medical assistance paid through Medi-Cal following termination of the trust. This is not true of third-party special needs trusts. Proper estate planning is critical to give the third-party option.
What Is a Child’s Trust
A child’s trust is created specifically for children and is managed by a trustee until the children have reached financial maturity. These are set up as an integral part of an estate plan to leave funds for children once they achieve a milestone, such as a specific age (usually 25 or older) or college graduation. A child’s trust is also referred to as a children’s trust or a minor’s trust. These trusts avoid probate, guardianships, and possibly taxes as well. They typically provide for the child’s care, support, maintenance and education until the age(s) you designate. As part of your estate plan, you can create both a special needs trust and a child’s trust to protect your special needs children. How you choose to allocate funds to each trust will depend on the age of your children and the severity of their disability.
Review Your Special Needs Trust Regularly
The best estate plans are reviewed regularly. Situations change, relationships begin and end, and children get older. To ensure that your children are properly cared for should you pass away before they are grown, you should be developing a comprehensive plan that you review regularly. If you are the parent of an older or adult child with special needs, you can create a special needs trust for them now, as part of your estate plan, to maintain them throughout their lives.
The Estate Planning Support Your Family Needs
Haven’t built your estate plan yet? We’re here to help! For more than 30 years, Joel A. Harris has been protecting the estates of families throughout California. If you want some help navigating the ins and outs of protecting your estate or establishing a trust to protect your future, feel free to visit us online, in person, or call us by phone at (925) 757-4605.