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Caring for a family member with a disability means thinking beyond today. It means asking hard questions about what happens to them when you are no longer able to provide support. A Special Needs Trust, often called an SNT, is one of the most powerful legal tools California families can use to answer that question with confidence.
What Is a Special Needs Trust?
A Special Needs Trust is a legal arrangement that holds assets for a person with disabilities without disqualifying them from public benefits.
A person with a disability often depends on government programs like Medi-Cal or Supplemental Security Income (SSI) to cover medical care, housing, and daily needs. These programs have strict income and asset limits. If your loved one receives a direct inheritance or cash gift, it can push them over those limits and cause them to lose benefits they rely on.
An SNT sidesteps that problem. Assets held inside the trust are not counted as the beneficiary’s personal property for purposes of benefit eligibility. The trust can then pay for goods and services that enhance your loved one’s quality of life, such as education, recreation, transportation, and personal care items, without affecting their benefit status.
Types of Special Needs Trusts in California
California recognizes several types of SNTs, each serving a different purpose depending on who funds the trust and when.
First-Party Special Needs Trusts
A first-party SNT, sometimes called a self-settled trust, holds assets that belong to the person with the disability. This often applies when a disabled individual receives a personal injury settlement, an inheritance left directly to them, or another financial windfall. Under federal law codified at 42 U.S.C. § 1396p(d)(4)(A), a first-party SNT must be established by the disabled individual, if capable, a parent, grandparent, legal guardian, or court, and the beneficiary must be under 65 years old, with funds contributed before turning 65. Critically, this type of trust includes a Medicaid payback provision, meaning the state may recover up to the amount of Medi-Cal benefits paid on the beneficiary’s behalf after the beneficiary’s death.
Third-Party Special Needs Trusts
A third-party SNT is funded by someone other than the beneficiary, typically a parent, grandparent, or other family member. Because the beneficiary never directly owned the assets, no Medi-Cal payback is required upon the beneficiary’s death. Remaining funds can be distributed to other family members or charitable organizations in accordance with the trust terms. This makes the third-party SNT the preferred planning tool for most California families preparing for a loved one’s long-term care.
Pooled Trusts
A pooled special needs trust is managed by a nonprofit organization that combines the assets of multiple beneficiaries for investment purposes while maintaining separate accounts for each individual. Under 42 U.S.C. § 1396p(d)(4)(C), pooled trusts are available to individuals of any age and can be established by the beneficiary. They are often a practical option when the trust assets are modest, and the cost of individual trust administration would be disproportionate.
How an SNT Protects Public Benefits
Properly structured, an SNT allows your loved one to receive financial support without jeopardizing SSI, Medi-Cal, or other means-tested programs.
SSI is administered by the Social Security Administration and limits countable resources to $2,000 for an individual. Medi-Cal, California’s Medicaid program, reinstated asset limits in 2026 at $130,000 for an individual, following the temporary elimination of the asset test in 2024–2025. Assets held inside a valid SNT are not counted toward these thresholds.
The trust can pay for a wide range of supplemental needs, including:
- Assistive technology and adaptive equipment
- Educational programs and job training
- Travel and transportation costs
- Entertainment, hobbies, and social activities
- Out-of-pocket medical expenses are not covered by Medi-Cal.
The trustee must exercise careful judgment. Certain distributions, like direct cash payments to the beneficiary or payments for shelter, can reduce SSI benefits dollar for dollar. Working with an attorney who understands these rules is essential to maximizing what the trust can accomplish.
Setting Up a Special Needs Trust in California
California SNTs must meet specific legal requirements to be valid and must be properly drafted to avoid unintended benefit disqualifications.
California law governing trusts is found in the California Probate Code, beginning at Section 15000. An SNT is a specialized type of trust that requires careful, precise drafting. The document must clearly identify the beneficiary’s disability, establish the trust’s supplemental purpose, and include appropriate distribution standards that align with SSI and Medi-Cal rules.
For first-party trusts, court approval is not generally required simply because it is a first-party trust, though it may be needed depending on the circumstances, such as when establishing a trust via court order for minor or litigation proceeds. The trust must also name a qualified trustee, who can be a family member or a professional fiduciary, and may include a successor trustee to ensure continuity.
Funding the trust correctly matters as much as drafting it. Assets transferred improperly or at the wrong time can create problems with benefit eligibility or trigger Medi-Cal lookback rules.
Why Timing Matters
Planning early gives your family more options. If a parent or grandparent creates an SNT as part of a broader estate plan, assets can flow directly into the trust at death, avoiding probate and protecting the beneficiary from the moment of inheritance. Waiting until a crisis, such as a sudden inheritance or a legal settlement, narrows your options and increases complexity.
How Keyes Law Group, PC Can Help
Families across Northern California trust Keyes Law Group, PC, to help them plan for a loved one’s future with clarity and care. Our firm guides families through the design, drafting, and funding of Special Needs Trusts tailored to each beneficiary’s specific circumstances and long-term needs.
If you are ready to take the next step, we encourage you to contact us or call us at 408-443-2397 to schedule a consultation.
