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Special Needs Trust
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Special Needs Trust

A special needs trust maximizes the resources available to a person with a disability to improve the quality of their life. Medicaid and Supplemental Security Income (SSI) provide necessities like shelter, food, and basic medical care. A special needs trust takes care of the other expenses in the special needs person’s life. Call California special needs trust attorney Hess-Verdon at (949) 706-7300.

What Is a Special Needs Trust? 

Special needs trusts are created to supplement government benefits for people with special needs. An individual who is physically, mentally, or chronically ill may get income from the trust without losing their government disability benefits, including Medicare, Medicaid, Social Security, Supplemental Security Income, etc. 

Special needs trusts are popular tools for helping those in need. They are irrevocable and thus protect the individual from becoming ineligible for programs that would otherwise require them to maintain a minimum income or asset level.

How a Special Needs Trust Works

A special needs trust provides your special loved ones financial assistance for expenses not covered by government assistance. If the beneficiary is to be eligible for public assistance, they cannot use the special needs trust assets for their basic needs such as housing or food. Anyone that receives special needs trust income uses them to pay medical expenses, caretaker budgets, transportation expenses, or other permitted expenses. 

Those who establish the trust choose a trustee who takes over the trust. Grantors use the trust deed to specify the terms under which the trustee should distribute funds. Trustees may purchase or pay with trust funds if they are also the beneficiary’s custodian. 

Trustees can be almost anyone, but managing SNTs requires caution so that the beneficiary doesn’t lose their government benefits. You might want to consider hiring a fiduciary trustee, such as an attorney or accountant. 

Types of Special Needs Trusts

Special needs trusts fall into three main categories. A trust’s type and rules depend on the source of assets. 

First-Party Special Needs Trusts

First-party special needs trusts are set up by parents, legal guardians, grandparents, or the court. To qualify for benefits, the beneficiary must be under 65 years of age and meet the Social Security Act definition of “disabled.” The trust is subject to Medicaid payback provisions. 

Medicaid requires the first-party SNT to reimburse the agency for monies spent on the beneficiary after their death. A limitation on this provision exists; assets used by beneficiaries during their lifetimes are not subject to payback; instead, the value of the trust at the time of death will apply. Furthermore, the trust should be irrevocable. 

The trust can also be used when the trust beneficiary receives an inheritance or a legal settlement. Paying the assets into a special needs trust excludes them from the government’s calculations. 

There is a tradeoff in first-party trusts: If the beneficiary dies with assets left over, the government can claim them for reimbursement to Medicaid and other government programs. 

Third-Party Special Needs Trusts

If the beneficiary is not the source of the assets used to fund the trust, you could use a third-party special needs trust. Families have the option of contributing various assets to these types of trusts, such as a home and investments. 

A third-party trust also qualifies beneficiaries for government assistance. With this type of trust, since the beneficiary does not own the assets, there is no governmental reach-back when the beneficiary dies. Depending on the family’s wishes, they can direct the wealth to be retained within the family or send it to a charity. 

Pooled Special Needs Trusts

Pooled trusts are a viable option if you cannot find a suitable candidate to serve as trustee or intend to leave only a very small amount of money. Community trusts, also called pooled trusts, are managed by nonprofits as trusts for special needs. Many states in the United States offer these types of trusts.

Not-for-profit corporations establish and manage pooled trusts, while financial institutions act as co-trustees. The funds are collectively invested and managed, but each beneficiary maintains its own sub-trust accounts. Appointed trustees manage the funds on behalf of beneficiaries. 

A government reimbursement is required for pooled trusts, much like first-party trusts. In exchange for managing pooled special needs trusts, a portion of the remainder of assets must be transferred to the nonprofit. 

Special Needs Trust Rules

First-party SNT requirements

The beneficiary owns the assets in a first-party trust. There are several names for this trust, including self-settled trust or U.S. Code 1396p (d) (4) (a) trust, because it was established under a subsection of that law. An inherited or court settlement amount is often managed with a first-party trust if the beneficiary receives Medicaid. 

First-party special needs trusts are subject to very specific guidelines in each state. Special needs trust funds must be approved before expenditures. Some states also require annual budgets. Trusts that fail to follow state regulations will be disqualified from Medicaid, and beneficiaries will be denied coverage. 

Other requirements include: 

  • The beneficiary must be a disabled person not older than 65 years
  •  An individual, a grandparent, a guardian, or a court must be the creators of the trust
  •  It is essential to name the state that pays benefits as the SNT’s primary beneficiary
  • Medicaid beneficiaries may only use trust assets for their benefit

Third-party SNT requirements

These trusts are for third parties that wish to support a loved one with a special need. SNT beneficiaries are not allowed to fund third-party special needs trusts. 

  • The beneficiary age is not restricted in special needs trusts
  • Especially when the donor of the trust is still alive, third-party special needs trusts rarely need court oversight
  • The trust can hold an unlimited amount of money
  • It is the donor who pays income taxes on most third-party special needs trusts rather than the beneficiary
  •  The beneficiary of a third-party special needs trust receives the trust’s money through the trustee of the SNT 
  • The beneficiary cannot own or touch the money directly of they risk losing eligibility for benefits
  • It is the trustee’s responsibility to use the money in the trust for the beneficiary’s needs

Pooled SNT requirements

Pooled trusts contain assets from multiple donors. An account is created for the disabled individual, which is segregated for the individual’s benefit. Like in a bank, each customer has a separate account at the bank, but the bank pools all deposits together. There are strict rules that must be followed when establishing a pooled trust: 

  • Pooled SNTs must be formed and managed by a nonprofit association
  • A sub-account is created for each individual
  • Assets are combined, managed, and invested together under the terms of the master trust
  •  Monies in sub-accounts can only be used for the needs of disabled beneficiaries

Individuals with disabilities, their guardians, parents, or even courts can be the creators of the sub-accounts 

If the individual dies, the trust will distribute to the state(s) the remaining amount in the trust-typically a sum equal to the beneficiary’s total benefits from Medicaid and other support programs. 

Special Needs Trust Attorneys Near Me

Hess-Verdon is in Newport Beach. We have 30 years’ experience in estate planning law. We have helped thousands of family’s protect their loved ones.

What expenses are allowed in a special needs trust?

A special needs trust has limitations. Trust assets cannot be used for basic needs and medical care covered by government assistance. Thus, you cannot use an SNT to cover the costs of shelter, food, or basic medical care-government support programs take care of these expenses. Instead, you should use a special needs trust to can pay for the supplemental needs of the disabled loved one, which may include: 

  • Housekeeping
  • Cooking assistance
  • Computers
  • Vacations
  • Lawyer fees
  • Clothing and cleaning
  • Companionship
  • Transportation
  • Furniture
  • Medical expenses not provided under Medicaid

Special Need Trust Trustees

Trustees have a somewhat complex and demanding role when managing special needs trusts. Their primary responsibilities include:

  • Investing in the trust fund prudently.
  • Championing the beneficiary’s rights.
  • Monitoring the services provided.
  • Maintaining a solid understanding of the beneficiary’s disability.

Choosing an SNT trustee requires careful consideration. Since this is a complicated task, you can seek professionals such as a lawyer or accountant. Special needs trust attorneys can also be instrumental throughout the trust’s lifespan, legally protect it, ensure compliance, and help trustees fulfill their role. 

Special Needs Trust Medicaid

Medicaid is a health insurance program that offers financial assistance to those who are disabled and in need of financial assistance. However, Medicaid is only available for children and adults who earn less than certain limits, differing from state to state. In most states, the max limit for eligibility is $2,000.

Medicaid eligibility can only be determined by looking at the assets and income legally accessible by an applicant. An asset in a special needs trust is prohibited from being directly accessed by the beneficiary. It is thus not legally accessible to the beneficiary. Therefore, special need trust assets do not interfere with the beneficiary’s eligibility for Medicaid. 

SNT income can be used to pay for living expenses not covered by Medicaid to improve the recipient’s quality of life. The basic needs that a disabled person requires are covered by Medicaid, such as rent, mortgage, food, and utilities. But an SNT cannot duplicate or supplant these expenses. If that happens, beneficiaries may be disqualified from receiving trust distributions. 

In the trust’s terms, the trustmaker should expressly state their desire to provide beneficiaries with assistance without affecting Medicaid eligibility. 

Accordingly, if the beneficiary is entitled to government support benefits, the trust agreement informs the trustee that trust assets should be used to supplement but never replace government benefits. 

Can the SNT be dissolved?

A special needs trust must be irrevocable to remain effective. No amendments can be made to them unless very specific circumstances exist. Beneficiaries of such trusts get income from it for their entire lives. 

What are the eligibility criteria for beneficiaries of special needs trusts? 

First-party SNT beneficiaries must be disabled. The beneficiary of a trust funded by a third party usually must also have a disability. 

What is the best time to set up a special needs trust?

Special needs trusts allow you to support your loved ones financially without affecting their benefits. For your loved ones with special needs, you might consider creating a special needs trust to support them financially after you die. 

How can I get inheritance and retain Medicaid?

If you get monies from an inheritance or court settlement award, you may protect your Medicaid benefits by establishing irrevocable Special Needs Trusts. 

What kinds of funds are available under special needs trusts?

Besides education and vehicle maintenance, the trust can also pay for vacations, electronic gadgets, bills, and fashion. 

Why do I need a special needs trust?

Public assistance payments do not cover all the financial needs of a person with special needs. An SNT helps to pay for other expenses in the beneficiary’s life not covered by government support. 

Who can manage an SNT?

Trustees can be a child’s parents, another relative, or trusted friend, including a lawyer, trust company, bank, accountant, or private fiduciary. 

Is it possible to add money to a special needs trust?

An inheritance or gift held in a third-party special needs trust allows the beneficiary to remain eligible for government assistance while still preserving the inheritance. The trust has no restrictions on how much money it can hold, so a parent can deposit money through a life insurance policy, an investment, or by giving the property to the trust. 

Special Needs Trust Attorney

A special needs trust might be a good option if you have a family member with a disability and the means of providing additional support. Special needs trusts seem simple enough, but the nuances of setting one up properly are quite complicated. Most of the time, it is best to consider all the needs of an individual and devise a comprehensive plan. 

You shouldn’t make these decisions if you’re not well informed. To create a special needs trust, it is advisable to consult an experienced elder law or special needs attorney. 

Hess-Verdon estate planning offer pre-screening consultations to answer all of your questions. Families are welcome to make an appointment to learn more about the process. 

Your special loved one can either face a lifetime of struggle or receive a lifetime of support through thoughtful estate planning.

Hess-Verdon is dedicated to helping people with special needs through advanced estate planning.

Call (949) 706-7300 for more information.


Hess-Verdon is ready to help you today.

Ultimate Guide: Special Needs Trust And Rules - Guidelines

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