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Determining the need for a special needs trust

On Behalf of | Oct 11, 2022 | Trusts

A special needs trust in California holds funds to provide for the special needs of a mentally or physically disabled individual. This type of trust provides for a person’s supplemental needs that are separate from regular living expenses.

First-party trusts

A first-party special needs trust (SNT) is created or funded by the beneficiary. The assets consist of an inheritance or court settlement. The beneficiary is not qualified to receive government benefits and is required to cover all of his or her living expenses. In some cases, the person is not disabled at first, and after becoming disabled, qualifies for additional benefits with an income or asset limitation.

Third-party trusts

A third-party special needs trust (SNT) is funded by the beneficiary’s family member, caretaker or close acquaintance. The remaining trust balance can be distributed to additional family members. The terms of a third-party SNT are included in a will or living trust that is designed to avoid probate.

Funds from trusts become available after the death of the creator. The creator retains full control of SNT assets and determines its distribution after the beneficiary dies. The terms of a special needs trust can be modified if changes occur to an estate law or the beneficiary’s finances.

A special needs trust allows family members to place assets into a fund and avoid handing them directly to the disabled person. The two main types are the first-party special needs trust (SNT) and the third-party special needs trust. The mentally or physically disabled individual becomes the beneficiary and is appointed a trustee to act on his or her behalf. The types of individuals who receive the funds after a beneficiary’s death will depend on the terms of the trust.


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