SPECIAL NEEDS TRUSTS - how they can maximize your child's inheritance


Special needs trusts are used to enable children and adults with special needs to have the benefit of assets, while still qualifying for supplemental security income (“SSI”) and Medi-Cal.

Parents of special needs children often create special needs trusts to protect their children after they are gone. Healthcare and caregiving costs can be the two most expensive needs for a person with a disability. These needs must be taken into account when leaving an inheritance. If parents were to leave their special needs children an inheritance in excess of $2,000, their children would no longer qualify for SSI or Medi-Cal.

Setting up a special needs trust also helps to ensure that bequests from grand-parents or other relatives, or even the proceeds from a lawsuit do not cause your child to lose eligibility for government benefits. Once a special needs trust is established, relatives can be notified so than any large gifts or bequests in their wills can be given to the trust, rather than to the child.

There are other benefits to special needs trusts beyond the protection of eligibility for government benefits. These include:

  • Protecting your child from predators who target vulnerable persons

  • Providing guidance on how your child should be supported

  • The ability to identify the persons who will manage your child’s money

  • Protect your child’s assets from the claims of creditors or spouses in divorce

  • Protect your child from making poor financial decisions due to lack of capacity or immaturity

A special needs trust works by creating an independent entity – the trust, which owns the assets. Since the child does not own or have access to the trust, the assets of the trust do not count as their income. The trustee appointed by the parents to administer the trust makes payments on behalf of the child, such as to schools, care providers, therapists, etc. Parents create the trust while they are still alive, and include provisions in their will that their assets will pass to the trust, for the benefit of their child, when they die. The trust does not need to have assets in it when it is first created. The trust can be created so that it is funded with your assets after your death.

You do not necessarily need an attorney to create a special needs trust. Very capable parents who are willing to do the research have been able to successfully create special needs trusts. It is preferable to obtain the advice and guidance of an attorney who specializes in estate planning . If you do attempt to do it on your own, you will want to seek out the guidance of the most current edition of books on the topic, such as books by Nolo Press and consider having your finished product reviewed by an attorney in your state.

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