If you have a child or grandchild who is special needs, they may be relying on public benefits for unique programming and care. Many of these public benefits are needs-based, meaning that in order to qualify for these benefits a person can only have so much money to his or her name. For example, for Supplemental Security Income (SSI), which is one of the programs for federal disability benefits, a single individual can only have $2,000.00 or less to qualify. If you pass away and your loved one who is on public benefits inherits from you outright, they can lose benefits. By doing proper estate planning, you can still leave a gift to your family members who are on benefits, but without the unintended consequence of them losing benefits.
One of the tools that you can use to provide for a special needs beneficiary is a special needs trust. Instead of leaving assets directly to a disabled child in your estate plan, you can direct that child’s share to a special needs trust in a living trust or will. This trust would not be under the control of the child, and the child would not be able to revoke it and use the assets for his or her own purposes. The trust would have an independent trustee and would continue for the lifetime of the child. This is known as a “Third Party Special Needs Trust” because the beneficiary has no control over the trust. Public benefits programs like SSI and Medi-Cal do not consider the assets held in this kind of trust as part of a beneficiary’s resources, and therefore receiving an inheritance through a third party special needs trust does not disrupt benefits.
If a beneficiary receives an inheritance outright, then public benefits programs will count the inheritance as a resource, and benefits will be disrupted. Beneficiary’s can use a court process to fix this kind of issue, but it is better for loved ones to plan ahead of time.