Assets and Income: What Can Be Placed in a Special Needs Trust?

Special needs trusts (SNTs) are specifically designed to provide financial security to individuals with special needs without affecting their eligibility for government benefits. SNTs are powerful tools that can help ensure that individuals with disabilities receive the necessary care and support they need. The attorneys at the Sheela Stark Law Group, APC, provide an overview of a few key aspects of starting and managing an SNT, such as the types of assets that can be used in a special needs trust, as well as who can add them and how they can be used.

What Kind of Assets Can Be Placed Into a Special Needs Trust?

In general, a variety of assets can be placed into a special needs trust, including cash, real estate, stocks, bonds, and other investments. In addition, individuals can also add other forms of income, such as private insurance disability payments. The trust can also receive money from other sources, such as gifts, settlement proceeds, court awards, or inheritances.

In some cases, family members and friends can make cash gifts to contribute to the trust. However, it is important to make sure that the gifts are made to the trust and not directly to the trust beneficiary. If the gift is made directly to the beneficiary, it could be counted as income and affect their eligibility for public benefits.

Who Can Place Assets and Money Into an SNT?

Another important aspect of SNTs is that the type of trust (first-party or third-party) determines who may place assets into the trust. For example, a first-party special needs trust must be funded with the beneficiary’s own assets, which may be a result of a personal injury lawsuit, an inheritance, or any assets the beneficiary may have accumulated before becoming disabled.

If the beneficiary has a pooled trust, there are usually no restrictions on who may transfer assets into the trust. The beneficiary’s parents, grandparents, and even the beneficiary themselves may add money or assets to the trust. In contrast, a third-party special needs trust is funded with other people’s assets. In most cases, the beneficiary’s parents or close relatives add money and assets to the trust. It is extremely important to be aware of the fact that anyone can place assets or contributions into a third-party trust, with the exception of the beneficiary. This is because the assets in the trust are not technically owned by the beneficiary and are not considered countable income.

Can a Special Needs Trust Own a House?

Another important aspect to consider concerning special needs trust assets is whether an SNT can own a house. Technically, any type of trust, including a special needs trust, can own real estate property, but the type of trust can make a difference and affect the SNT’s beneficiary’s eligibility for benefits.

If a first-party SNT owns a house, the house may still be counted as an asset owned by the beneficiary because a first-party SNT is solely funded by the beneficiary’s assets and money. In other words, placing a house into a first-party SNT does not remove it from the beneficiary’s countable assets and thus may have a negative impact on their ability to qualify for or continue receiving public benefits such as SSI and Medi-Cal.

In contrast, assets placed in a third-party SNT do not technically belong to the beneficiary, as this type of trust is funded with other people’s assets. In this case, transferring the ownership of a house to a third-party SNT may likely be done with less chance of any potentially negative impact on the beneficiary’s eligibility for benefits. If you are not sure about what type of assets should and should not be included in a special needs trust, be sure to consult an attorney to get answers to your questions.

What Can a Special Needs Trust Pay For?

A special needs trust (SNT) can pay for items and services that are not covered by the public benefits program the beneficiary receives, such as certain types of medical treatments, equipment, and educational opportunities, in addition to other expenses, such as entertainment, recreation, vacations, and transportation. The SNT can also pay for services such as personal care attendants, home modifications, and special programs that will help the beneficiary with activities of daily living. In addition, the trust can be used to pay for other expenses such as legal fees, financial management costs, and taxes.

However, it is important to note that the trust cannot be used to pay for items or services that are already covered by public benefits. If, for example, a beneficiary already receives SSI checks to cover basic living expenses such as food and shelter costs (which include rent and basic utilities such as gas, electricity, and water), those expenses must be paid using the beneficiary’s SSI checks rather than trust funds.

It is also worth noting that the beneficiary of an SNT should not have direct access to the SNT funds. The trustee must manage all the funds, and any payments must be made directly from the trust. For instance, if the beneficiary needs to purchase a plane ticket to visit a relative in another state, the trust funds can be used for that purpose, but the trustee must pay the airline directly instead of giving the beneficiary money from the trust to purchase the ticket.

If you have questions about SNTs, are considering starting one for your child or loved one, or have general questions concerning estate planning strategies for families of special needs individuals in California, contact the attorneys at the Sheela Stark Law Group, APC, at 909-675-1545.