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Two types of special needs trusts

On Behalf of | Mar 9, 2023 | Estate Administration & Probate

Individuals can create special needs trusts in California to hold benefits for people with special needs. The money in the trust often is not counted as assets when qualifying for federal programs, but there may be specific ways that the trust’s assets may be spent. Generally, these trusts fall into two categories.

Self-settled special needs trusts

A person with a special need funds his own self-settled special needs trust. Often, the trustee can use the fund’s assets to provide items not covered by Medicare and Medicaid without hurting the person’s entitlements to those programs.

A trustee must be named to oversee the fund so the individual does not have direct access to the money. Often, individuals receiving a lump-sum payment create these accounts. Sometimes, a person with a special need can pool their funds with others in one trust administered by a nonprofit organization. In these cases, the nonprofit maintains individual spending accounts for each person.

Third-party special needs trusts

People, such as parents and grandparents, can also create trusts to care for a person with special needs without harming their ability to get on or remain on government benefits. The person creating these trusts usually funds them then, but they can support them later, especially in their will.

One person can make the trust while others join them in placing funds in the trust. A trustee oversees fund distributions. Individuals with special estate planning needs can set up these funds so that when a person with special needs dies, funds remaining in the trust go to other family members.

There are at least two ways to create trusts to care for individuals with special needs; these are just two options that you could discuss with a financial professional.


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