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What Actually Is A Special Needs Trust?


A special needs trust is a trust that has restrictions on the distribution to the beneficiary. The purpose is so the beneficiary will not lose their government benefits, specifically ‘means tested’ government benefits.

Are There Different Kinds Of Special Needs Trusts?

There are different special needs trusts. The three main categories are third party special needs trusts, first party special needs trust, and pooled special needs trusts.

What Is The Process To Create A Special Needs Trust?

The process varies depending on which of those three types you need for a special needs trust. The third party special needs trust is one that is funded by someone other than the disabled person. It is created independently by that person, and funded by anyone. It could be the person who created the trust, or a family member who funded it or it could be from other people who funded it, but this donor creates it independently. A first party special needs trust is created and funded by the disabled beneficiary, or by that person’s parents, grandparents, or in some cases, by the courts.

Those are different, and we will talk later on how they are different. The pooled trust is created in concept by the organization that manages the trust. These are trusts that are managed by non-profit organizations, and they create a standard trust agreement for each beneficiary who is going to have assets in that pooled trust. Their representatives execute what is called a joinder agreement to allow them to become a part of this pooled trust.

Are Special Needs Trusts Going To Be Irrevocable Trusts?

Some special needs trusts will definitely be irrevocable trusts. All first party, and all pooled trusts are irrevocable, but the third party trusts may be revocable for a time. At some point, they may convert to an irrevocable trust. The way this works is that the donor who sets up the trust is usually the parent of the disabled person, and during their lifetime, has had the authority to make changes to the trust. So if the child’s condition changes, the parents can make appropriate changes to the trust. It also allows that trust to be taxed directly to the parents, rather than being taxed to the child, which could cause its own issues with their disability benefits. Sometimes, during the life of the Grantor, the trust may remain revocable.

How Can Funds Be Spent With The Special Needs Trust?

Generally, it is what we call a discretionary trust, which means that the trustee has the ability to decide what the funds should be used for. There are three exceptions: the trustee cannot use the funds in the trust for the beneficiary’s food, shelter, or to give the beneficiary cash. Any other use of the funds is generally appropriate. Its purpose is to provide for living expenses and other needs that are not covered by the beneficiary’s government benefits. Therefore, if medical treatments are needed, but not covered, or if there is some equipment that would assist a disabled person to improve their lives the trust assets may be used for those purchases. It can be used for what we would consider ordinary expenses, such as furniture, electronics, vacation, or a specialized vehicle that allows them to be more mobile.

For more information on Special Needs Trust In California, a free initial consultation is your next best step. Get the information and legal answers you are seeking by calling (626) 385-6303 today.

Newell & Havens Attorney At Law

Call for a free assessment of your needs
(626) 385-6303.

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