Special Needs Trusts may be useful for a person who meets all these criteria:

  • Physically or mentally disabled
  • Receiving or might receive needs-based public benefits such as Supplemental Security Income (SSI) or Medi-Cal
  • Expected to receive assets that will disqualify him or her from SSI or Medi-Cal

Following are some commonly asked questions and answers about Special Needs Trusts:

What is an SNT?

A Special Needs Trust, sometimes called a Supplemental Needs Trust, is a Trust that is created and designed to hold the property of a person who is physically or mentally disabled so that s/he can enjoy the use of the property and still qualify for needs-based public benefits. The purpose of the SNT is to meet the person’s special and supplemental needs in a manner which will preserve the person’s autonomy, personal independence and dignity (particularly as these factors contribute to the person’s mental and physical well being), and to enhance the person’s quality of life.

What are needs-based public benefits?

Needs-based public benefits are benefits for which a person can qualify only if his or her countable assets (usually cash and investments) are less than a certain low value. Supplemental Security Income (SSI) and Medi-Cal (called “Medicaid” outside California) are the more common needs-based public benefits. Each of these programs has a countable asset limitation of $2,000 for an unmarried person.

How does an SNT work?

A key to the SNT’s ability to maintain eligibility for needs-based public benefits is that the beneficiary cannot have control over the assets in the SNT. The beneficiary cannot manage the assets, has no right to demand receipt of income or property from the SNT, and has no power to name the manager of the Trust (known as the Trustee) or to change the terms of the SNT. The use of the SNT’s assets for the benefit of the beneficiary is determined at the discretion of the Trustee of the SNT. The Trustee can be a family member, friend, or private professional Trustee.

What can an SNT pay for?

The SNT can pay for things that will not affect the beneficiary’s benefits, so it depends on what those benefits are, for example SSI or just Medi-Cal. Some examples of what the SNT can pay for are: dental care; special equipment; programs of training; education; treatment and rehabilitation; eye glasses; transportation, including vehicle purchase, insurance and gasoline; travel needs; recreation; entertainment; electronic equipment such as stereo components, television sets, videocassette recorders, computers and appropriate computer equipment and software; internet and television services; camping; vacations; movies; trips; the services of a companion to enhance the beneficiary’s self-esteem or living assistance; housecleaning; money management; scheduling activities; and many other activities of daily living. These are just some of the things that the SNT can pay for without affecting the beneficiary’s benefits.

What can’t the SNT pay for without affecting the beneficiary’s benefits?

The SNT can’t give the beneficiary cash or reimburse the beneficiary for allowable items the beneficiary buys. Paying for an SSI beneficiary’s food or shelter will reduce or eliminate his or her SSI. The rules are less restrictive for Medi-Cal.

What are the sources of funding for SNTs?

Special Needs Trusts are frequently created to hold an inheritance or the proceeds from personal injury litigation. However, a SNT may be created to hold assets derived from other sources.

What are the different types of SNTs?

There are First-Party and Third-Party SNTs, either of which can be Individual or Pooled.

A First-Party SNT is one into which a disabled beneficiary’s own assets are placed, typically from an inheritance or litigation. This may be appropriate for a person who wishes to utilize those funds to supplement his/her public benefits. An individual First-Party SNT is sometimes called a (d)(4)(A) Trust.

A Third-Party SNT is established by and funded with the assets of a person other than the beneficiary. This is often easier to set up and cheaper to administer, but involves planning ahead.

Pooled SNTs can be either First-Party, i.e., a (d)(4)(C) Trust, or Third-Party, but involve joining an already existing Trust with many beneficiaries. In some cases, they may be faster and less expensive to implement than a Trust created for just one individual; but the pooled SNT already has a Trustee and may cost more to administer over time.

How do First-Party Individual SNTs work?

They can be created by a parent, grandparent, legal guardian, or the Court. The beneficiary must be younger than 65 years old. In California, when a Court order authorizes or establishes the SNT, ongoing Court supervision is required (with rare exceptions) which increases the costs of creating and administering the Trust. When the Trust is terminated, any assets remaining must first pay back the State for medical assistance before going to the remainder beneficiaries.

How do Third-Party Individual SNTs work?

Many of the restrictions of a First-Party SNT do not apply to a Third-Party SNT. It is created by almost any person except the beneficiary or his/her spouse (although a spouse can create an SNT in his/her will). The creator puts his or her own money or other assets into the Trust. Usually there is no Court involvement, which reduces the costs of administration. There is no age limit on the beneficiary and it does not have to pay back the State at termination. Any Trust assets remaining at termination can be distributed to whomever the person establishing the Trust wants.

How do First-Party Pooled SNTs work?

A First-Party Pooled SNT is established by a non-profit corporation and joined by the disabled beneficiary (if a competent adult), or on his/her behalf by a parent, grandparent, legal guardian, or Court. The Pooled SNT has multiple beneficiaries, each with his or her own account. And it already has in place a Trustee, an investment company, and an administrator. There is no age limit for the beneficiary who joins, but there may be an ineligibility period for Medi-Cal benefits for skilled nursing care. In California, when a Court order authorizes or establishes the SNT, ongoing Court supervision is required (with rare exceptions), which increases the costs. First-Party Pooled SNTs also require the State be reimbursed for Medi-Cal benefits when terminated, after which any Trust funds remaining can be given to the remainder beneficiaries. First-Party Pooled SNTs established in states other than California may allow the joining beneficiary to leave something to the Trust before reimbursing the State.

How do Third-Party Pooled SNTs work?

These are a form of Pooled SNT. They are not as well known and there are not as many of these available. They combine the flexibility noted above for Third-Party Individual SNTs (almost anybody can join, no Court involvement, no age limit, no payback to the State) with the attributes of a pooled SNT (potential speed and cost savings).