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There are 2 typical types of 1st party special needs trusts:

(i)         an inheritance/gift SNT where the special needs person receives an inheritance or a gift
(ii)        a litigation SNT where the special needs person receives funds arising from a settlement or judgment in a personal injury lawsuit.   

Eligibility for SSI and Medi-Cal is based on one’s means.  An individual cannot have more than $2,000 of “non-exempt” assets (such as cash or stock) to qualify for SSI and/or Medi-Cal.  In both the above situations, an $100,000 inheritance or award in a lawsuit would render that person no longer eligible for public benefits for the month after s/he received the benefit.  Establishing a SNT through the court is one way that those funds can be placed in a so that the disabled person can maintain his/her benefits. **

There are, however, several downsides to establishing a SNT through a court order which do not apply to 3rd party SNT.  The main one is that the trust will continue to be subject to the jurisdiction of the probate court.  This means that:

(a)       accounts will have to be filed with the court at the end of the first year of the trust and every two years after that (though this requirement may be waived if the amount in the trust is small enough);
(b)       the trustee will have to be “bonded”
(c)        there are restrictions on the type of investments that the trustee can invest in;
(d)       if the trustee resigns, his/her successor must be first approved by the court;
(e)       restriction on use of assets.  For example, prior court approval if often required if the trustee wishes to purchase a house, a car or a life insurance policy;
(f)        when the disabled child dies, whatever funds are left in the trust must be used first to pay off any and there are more!

At the Law Offices of Patrick McNally we can assist both the disabled person’s family and in the case of a litigation SNT, the attorney for the disabled person, in navigating the treacherous waters of 1st party trusts so that and, in the case of an attorney, avoid liability for failing to effectively protect eligibility or address issues such as Medicare liens; Motions to Seal etc.

** NOTE:  Establishing a special needs trust is just one of several options which can be utilized to allow the disabled person to receive those “illegible” funds and still maintain his/her benefits.  We can advise on all options and assist the disabled person and his/her family in selecting the optimal option under the circumstances.

See Link to Settlement Trusts and Planning

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