Special Needs Trust
When a loved one has special needs, you want to make sure they're cared for, both now and in the future. Special needs trusts are legal arrangements that hold and manage assets for the benefit of a person with disabilities.
What is a Special Needs Trust (SNT) ?
The purpose of a “Special Needs Trust” is to preserve government benefits for disabled beneficiaries. Instead of leaving assets directly to the disabled adult child, families can establish a “Third Party Special Needs Trust” in their living trust or wills.
This trust would not be under the control of the child but would be managed by an independent trustee named by the parents and would continue for the lifetime of the child.
Purpose
The purpose of a “Special Needs Trust” is to preserve government benefits for disabled beneficiaries. Instead of leaving assets directly to the disabled adult child, families can establish a “Third Party Special Needs Trust” in their living trust or wills.
Types of Special Needs Trusts
First-Party
Third-Party
Funded with assets belonging to the individual with disabilities. Allows beneficiary use their own funds to improve their life without losing important safety net programs
Funded by assets from anyone other than the beneficiary. Parents or other family members often use these trusts to make sure their loved ones are cared for even after they're gone.
Pooled
Pools assets from different people and puts them into a large investment fund. Although the funds are pooled (used together), you still have your own separate account.
Third-Party
The trust can own assets that are used but not “owned” by the beneficiary, and so do not count against needs-based government aid.
​
Assets owned by the trust can include money, property, stocks and bonds, child support, and monetary legal settlements; and other family members and friends can also contribute money and assets to the trust.
Expenses paid by Trust
The trustee may not want to give cash directly to the child, as such payments are counted as income against SSI, but they can pay for expenses such as:
Utilities
Transportation
Recreation
Education
The key to a Third Party SNT is that the money cannot be used for housing. Housing is considered a basic need under Social Security laws. If you are getting free housing from someone else, including a family member or an SNT, then there will be a penalty and your public benefits will be lowered or stopped.
An SNT provides for the needs of a person with a disability without losing or reducing their benefits such as Supplemental Security Income (SSI), Medi-Cal, In-Home Support Services (IHSS), and HUD housing assistance. And assets in an SNT won’t be counted toward the SSI asset limit.
Differences between SNT and CalABLE?
Advantages of ABLE
-
Tax benefits
-
Easier (and cheaper) to open
-
Easier to use the money in the account
-
The person with a disability has more control over the account
-
Money from an ABLE account used for housing expenses doesn’t make SSI benefits go down
Advantages of SNT
-
No limits on contributions
-
Money can be put into a third-party trust, instead of in the disabled person’s name. When the beneficiary dies, a third-party trust does not have to repay Medi-Cal for medical expenses.
-
Some third-party trusts are Qualified Disability Trusts and have tax benefits
The bottom line: Because of the $18,000 annual limit on contributions (as of 2024) to an ABLE account, you cannot replace a trust with an ABLE account. Instead, consider using them both as part of your overall asset-building strategy.
