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Margaret Ann Hendrick

2244 Faraday Avenue
Carlsbad, California 92008

(760) 431-0005

(619) 890-9507

Why You Need a Special Needs Trust and How to Overcome the Obstacles Preventing You from Getting One


February 1, 2018

A Special Needs Trust, also referred to as a Supplemental Needs Trust, is a specialized trust designed to benefit an individual with a disability. Most people with disabilities are entitled to government benefits including Supplemental Security Income (SSI), Medi-Cal and HUD Housing Assistance. Over the course of a lifetime SSI benefits alone can exceed $500,000 making it a vital resource worth protecting. However, to qualify, and remain eligible for, these government benefits the person with the disability cannot have more than $2000 in assets at any given time.

Unfortunately, without a Special Needs Trust, the unexpected passing of a parent(s), with even minimal assets, can render a loved one with a disability ineligible for these valuable government benefits. Additionally, well-meaning but uninformed family member such as grandparents, siblings, aunts or uncles may leave assets to the loved one with a disability and unknowingly jeopardize government benefits. For these reasons if you want to leave money or property to a loved one with a disability a Special Needs Trust is the best estate planning approach. There are two types of Special Needs Trusts, commonly referred to as “First-Party” or “Third-Party”.

A Third-Party Special Needs Trust is the most commonly used trust to benefit a person with special needs. With a Third-Party Special Needs Trust, the disabled beneficiary does not own or have control over the assets in the trust. Family members typically create this trust and leave money and property to the trust through their will, living trusts, life insurance and other beneficiary designations. For those families with limited assets at the time the trust is created the best option is for the parents to purchase life insurance naming the special needs trust as the beneficiary. The trustee of the Third-Party Special Needs Trust, which is usually a family member, then uses the funds in the trust for the support and benefit of the person with special needs. Funds in this trust may be used for a wide variety of life enhancing expenditures including trips and vacations, entertainment, furnishing and electronics, supplemental education and tutoring, and transportation, including the purchase of a vehicle to name a few. The trustee must abide by strict trust requirements and make sure the trust funds are not used in a manner that would jeopardize the beneficiary’s eligibility for government benefits. Specifically, funds from the trust must never be distributed directly to the beneficiary with special needs. Instead, the trustee pays third parties directly for the goods and services for the use and enjoyment by the beneficiary.

Unlike Third-Party Special Needs Trusts, which are funded by property owned by someone other than the beneficiary with a disability, First-Party Special Needs Trusts are funded with assets owned by the person with special needs. These trusts typically become necessary when a person with special needs acquires funds or property through inheritance, life insurance or personal injury awards, before a special needs trust has been established on their behalf. If the First-Party Special Needs Trust is created properly, the assets can be used to benefit the person with special needs without jeopardizing eligibility for government benefits. The down side, however, to a First-Party Special Needs Trust is that funds remaining in the trust upon the disabled beneficiary’s death are not readily available to successor beneficiaries as is the case in Third-Party Special Needs Trusts.

There are two types of First-Party Special Needs Trusts. The first is referred to as a “Payback” or “(d)(4)(A)” trust which references the federal statute authorizing these trusts. “Payback” trusts are created with the assets of the person with special needs who must be under the age of 65. These trusts can only be established by a parent, grandparent, legal guardian or a court. And, most significantly, “Payback” trusts require that upon the death of the beneficiary, any funds remaining in the trust must first be paid to the state to reimburse for Medi-Cal expenses paid on the beneficiary’s behalf over the course of his or her lifetime.

The second type of First-Party Special Needs Trusts are commonly referred to as “Pooled Trusts”. These trusts pool the resources of many persons with special needs and are established and managed by non-profit organizations. Individual accounts are set up for each beneficiary who joins the pooled trust and each beneficiary receives distributions from their own account. Unlike individual special needs trusts, pooled trusts may be created for beneficiaries of any age and may be created by the beneficiary. Although there are no “payback” requirements to the state upon the beneficiary’s death, any funds remaining in the account upon the death of the beneficiary are held in the “pooled trust” for the benefit of the other disabled beneficiaries. “Pooled Trusts” typically work well for people with limited assets who cannot justify the costs associated with creating and maintaining an individual trust and/or do not have a trusted family member or friend who can serve as trustee.

While every family with a loved one with a disability may know they need a special needs trust there are often emotional, financial and logistical obstacles preventing them from getting one. No one wants to think about death and the loved ones that will be left behind, especially loved ones with special needs. The process of meeting with an attorney to complete an estate plan is stressful under ordinary circumstances but more so when a family member with a disability is involved. Additionally, many people may think that the cost of an estate plan that includes a special needs trust is more than they can afford out of their day to day budget or that they do not have enough money to fund the special needs trust once it is created. Finally, for many families, especially if both parents work, it may be logistically difficult to make an appointment with an attorney during normal business hours.

At Hendrick Legal Solutions we make overcoming these obstacles possible. We offer evening and weekend appointments for those families who cannot make an appointment during normal business hours. Our rates are very competitive, we offer flexible payment options, and there is never a charge for consultation. Finally, we understand the day to day challenges faced by those with special needs and their families and strive to make planning for the future as stress free as possible.





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2244 Faraday Avenue
Carlsbad, California 92008

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