If you have a child, sibling, or other family member with a disability who relies on government benefits, leaving them an inheritance directly can do more harm than good. A special needs trust solves this problem, letting you provide financial support without disqualifying them from the assistance they depend on.

Why a Direct Inheritance Can Backfire

Programs like Supplemental Security Income (SSI) and Medi-Cal have strict asset limits. A beneficiary who inherits money or property outright, even a modest amount, can quickly exceed those limits and lose eligibility for benefits they may need for the rest of their life.

How a Special Needs Trust Solves This

A special needs trust (SNT), sometimes called a supplemental needs trust, holds assets on behalf of a disabled beneficiary without those assets counting against their eligibility for public benefits. The trustee, not the beneficiary, controls the funds, and uses them to pay for expenses that supplement, rather than replace, government assistance, things like specialized equipment, therapies, education, transportation, and quality-of-life expenses not covered by public programs.

Types of Special Needs Trusts

• First-party (self-settled) trusts – funded with the disabled individual’s own assets, often from a settlement or inheritance received directly. These typically require a Medi-Cal payback provision upon the beneficiary’s death.
• Third-party trusts – funded by parents, grandparents, or other family members specifically for the beneficiary’s benefit, with no Medi-Cal payback requirement, making this the preferred option when planning proactively.
• Pooled trusts – managed by a nonprofit organization that combines resources from multiple beneficiaries for investment purposes while maintaining separate accounts for each individual.

Legal Requirements in California

Special needs trusts must comply with California Probate Code sections 3600–3605 and 3610–3613. Trustees are also required to notify the Department of Health Care Services (DHCS) at least 15 days before certain court hearings involving the trust, and again upon the trust’s termination.

Choosing a Trustee

Because the trustee makes ongoing decisions about disbursements for years or decades, many families choose a professional fiduciary, a bank trust department, or a nonprofit trust administrator rather than a family member, to ensure consistent, informed management and to avoid potential conflicts within the family.

Integrating It With Your Overall Estate Plan

A special needs trust doesn’t replace your will or living trust, it works alongside them. Your broader estate plan should specifically direct any inheritance intended for your disabled loved one into the special needs trust, rather than to them directly, to avoid accidentally disqualifying them from benefits.

If you’re planning for a family member with a disability, this is not a document to draft without experienced guidance. Michael Kerr can help you structure a special needs trust that protects your loved one’s benefits while still providing meaningfully for their future.