A special needs trust is established to prevent people from losing benefits from certain government programs after receiving a settlement. An influx of wealth can make one ineligible for benefits from Supplementary Security Income (SSI), Veterans Aid and Attendance, Medicaid, and government housing. A special needs trust supplements but does not replace, these benefits by paying for non-covered services or equipment. Below are the applicable laws to establishing a special needs trust in California.
U.S. Code Section 1396p.(d)(4)(A)
(4) This subsection shall not apply to any of the following trusts:
(A) A trust containing the assets of an individual under age 65 who is disabled (as defined in section 1382c(a)(3) of this title) and which is established for the benefit of such individual by the individual, a parent, grandparent, legal guardian of the individual, or a court if the State will receive all amounts remaining in the trust upon the death of such individual up to an amount equal to the total medical assistance paid on behalf of the individual under a State plan under this subchapter. Full text
California Department of Health Care Services:
There are two common types of special needs trusts: first-party trusts and third-party funded trusts. A first-party trust requires the assets to come from the beneficiary. These trusts must include federal and state provisions, which require notice and payback to the State upon the death of the trust beneficiary or earlier termination of the trust. The California Department of Health Care Services (DHCS) is required to recover up to an amount equal to the total medical assistance paid by Medi-Cal on the trust beneficiary’s behalf. First-party SNTs are classified as either a (d)(4)(A) SNT or a pooled SNT. Third-party SNTs are funded with assets belonging to a person other than the trust beneficiary. Third-party trusts are not subject to recovery by DHCS.
At trust establishment, the trustee is required to notify DHCS at least 15 days prior to the hearing pursuant to Probate Code Sections 3600-3605 and 3610-3613.