If you have a special needs loved one, you want to ensure they have all the resources to live a fulfilling life after you pass, but they likely require support that government benefits are insufficient to provide. Unfortunately, leaving a traditional inheritance disqualifies them from receiving benefits. Luckily, working with an expert CPA to administer a California special needs trust is the prime solution to ensure they continue receiving benefits while receiving supplemental assistance. Here’s how it works:
What Is a California Special Needs Trust?
A special needs trust (SNT) is an irrevocable trust that enables a disabled person to qualify for public assistance benefits while receiving assets that would otherwise disqualify them. Generally, there are two kinds of SNTs:
- First-Party Funded SNTs are created using assets a disabled person owns. For example, if they receive retirement or a lawsuit settlement, a first-party SNT preserves their benefits, though you must pay back up to half of what they received when the beneficiary dies.
- Third-Party SNTs are created by someone other than the beneficiary with assets that belong to someone other than the beneficiary. They create these SNTs using assets the beneficiary never possessed and assets they never had a legal interest in. These require no repayment and enable them to continue receiving benefits.
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Why Do You Need a Special Needs Trust?
Creating a special needs trust in California is imperative to ensuring a disabled person is taken care of and can live a fulfilling life.
Essentially, disabled or sick Californians are eligible to receive Federal support via programs like Medi-Cal, HUD housing assistance, In-Home Support Services, and Supplemental Security Income.
However, these programs impose limits on the financial resources beneficiaries can possess. If a disabled child receives an inheritance exceeding a certain amount, they no longer qualify for benefits under California law.
This can create several issues. The inheritance may be less than they would have received in benefits, or medical expenses could quickly deplete inheritance funds and eliminate support. These problems often put parents in a difficult position.
Without a third-party SNT, parents may have to disinherit a disabled child during estate planning to preserve their benefits. Another crucial benefit of an SNT is it ensures someone is managing their finances.
If the person receiving an inheritance cannot manage it, it can cause significant stress and problems. To learn more about income limits that disqualify someone from receiving benefits, contacting a CPA is essential.
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How a Special Needs Trust Works
A special needs trust in California ensures a disabled child can receive an inheritance and benefits simultaneously.
SNTs continue until the beneficiary dies or depletes it. The government does not consider assets in it as property of the disabled person because they do not have direct access to them.
Trustees can use assets to pay for their health, maintenance, education, activities, and other support their benefits cannot afford. Still, be aware that the trustee cannot make cash payments to the child without it being considered income.
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Can I Still Receive Benefits while Receiving Trust Assets?
Ultimately, this depends on your situation and the type of trust. A disabled person can only continue receiving benefits if you establish a California special needs trust (this kind of trust only), they don’t receive money directly, and they have no power over the trust.
While they can still receive benefits using a first-party SNT, you must repay some of the money when the beneficiary dies. Alternatively, if someone other than the beneficiary establishes a third-party SNT, they can receive benefits with no obligation for repayment.
If someone receives an inheritance that disqualifies them from receiving benefits, after they have used their inheritance, they can reapply to receive benefits. Still, it is time-consuming and can result in a lapse in medical coverage and access to resources.
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Get Help Establishing and Administering a Special Needs Trust in California
Ensuring a special needs loved one is taken care of after you pass and can maintain a good quality of life requires establishing an SNT. However, the process is complicated. Failure to include the correct language, administer it, and distribute assets per California state guidelines can result in them losing benefits. To ensure your loved one can live the life they deserve, it is imperative to work with someone like Marcia Campbell, who offers unparalleled trust accounting services and will be your loved one’s guardian angel.