Special Needs Trusts (SNTs) play a critical role in ensuring the financial security of individuals with disabilities without jeopardizing their eligibility for government benefits such as Supplemental Security Income (SSI) and Medi-Cal. As of 2023, California has updated several rules and guidelines governing Special Needs Trusts, particularly around spending. These changes have been implemented to ensure greater transparency and accountability while protecting the needs of the trust beneficiaries.
In this blog post, we’ll dive into the latest updates for Special Needs Trusts in California, including new spending guidelines, and how these changes may affect trust beneficiaries and their families.
What Is a Special Needs Trust?
A Special Needs Trust (SNT) is a legal arrangement designed to provide for a beneficiary with a disability while preserving their eligibility for government assistance programs like SSI and Medi-Cal. These trusts are crucial because they allow a person with disabilities to receive funds that can improve their quality of life without exceeding the financial asset limits required for government benefit eligibility.
There are two main types of Special Needs Trusts:
First-Party Special Needs Trusts: These are funded with the disabled individual’s own assets (often from a personal injury settlement or inheritance).
Third-Party Special Needs Trusts: These are funded by someone other than the disabled individual, such as parents or relatives.
Recent Changes to Special Needs Trust Rules
Several new rules have been introduced or clarified regarding Special Needs Trusts in California. The two most significant areas of change include:
1. Clarified Spending Guidelines
The primary purpose of an SNT is to cover costs that government benefits do not. However, it is crucial that funds from the trust are used appropriately to avoid jeopardizing eligibility for programs like SSI and Medi-Cal. New spending guidelines provide clearer instructions on what trust funds can and cannot be used for.
Here are some examples of approved expenses under the new guidelines:
Medical and dental care not covered by Medi-Cal.
Specialized equipment such as wheelchairs, hearing aids, or other assistive devices.
Educational expenses, including tuition, books, and tutoring.
Personal care services, including caregiving or in-home support services not covered by state programs.
Transportation, including the purchase and maintenance of a vehicle adapted for a person with disabilities.
Recreational and cultural experiences: Vacations, entertainment, and hobbies that enhance the quality of life of the trust beneficiary.
Housing costs: Rent or mortgage payments, home maintenance, and modifications to make the home more accessible.
However, some restrictions apply to the use of trust funds to avoid disqualification from SSI. For instance, using SNT funds for food and shelter can reduce the monthly SSI benefits the beneficiary receives. Trustees must carefully manage expenditures to avoid diminishing the benefits.
2. Court and Trustee Oversight
New rules have also introduced stronger oversight to ensure SNTs are being administered correctly and in the best interest of the beneficiary. Trustees of Special Needs Trusts must follow strict fiduciary duties, ensuring that the trust’s assets are only used for the beneficiary’s needs.
Some key updates include:
More Frequent Reporting Requirements: Trustees must provide detailed accounting reports to the court or other supervisory bodies more frequently, showing how the trust funds are being spent. These reports ensure that the beneficiary is receiving the intended support and that funds are not being misused.
Beneficiary Involvement: There is an increased emphasis on including the beneficiary in discussions about trust distributions whenever possible, to ensure that the funds are being used in ways that align with their personal needs and preferences.
Trustee Compensation: Updated guidelines also provide clarity on how trustees can be compensated for their services. Trustees must maintain transparency in their compensation and ensure that it aligns with industry standards and the amount of work involved in managing the trust.
Spending Guidelines and SSI Considerations
The changes emphasize careful spending in line with SSI resource limits. SSI has strict income and asset limits—beneficiaries generally cannot have more than $2,000 in countable assets to qualify for SSI. The trust itself is not counted toward this limit, but the way the funds are spent can affect eligibility.
For example:
Direct cash distributions to the beneficiary will count as income and could result in a loss of SSI benefits for that month.
Payments for food or shelter expenses may reduce the amount of SSI the beneficiary receives, known as "In-Kind Support and Maintenance" (ISM). The updated rules suggest avoiding direct payments for these items from the SNT to prevent SSI reductions.
To minimize these impacts, trustees are encouraged to use trust funds for non-countable resources that do not affect SSI eligibility, such as education, medical expenses, or personal care services.
Importance of Professional Management
Due to the complexity of the new rules and spending guidelines, it is often advisable to have an experienced trustee or professional manage the Special Needs Trust. Mistakes in administering the trust could jeopardize the beneficiary’s government benefits, which can have long-lasting negative effects.
Professional trustees—such as trust companies or attorneys—are trained in managing these complexities and can ensure that trust funds are spent in a manner that maximizes the beneficiary’s quality of life while maintaining their eligibility for essential government programs.
Conclusion
The new rules and spending guidelines for Special Needs Trusts in California reflect the evolving legal landscape surrounding the care of individuals with disabilities. These changes aim to provide better oversight, ensure responsible spending, and protect the interests of beneficiaries who rely on government assistance.
For families and trustees, staying informed about these changes is crucial to avoiding unintended consequences, such as the loss of benefits or mismanagement of trust funds. Working with an experienced attorney or trustee who understands the latest legal requirements can help you navigate the complexities of Special Needs Trusts and ensure that the trust serves its intended purpose—providing for the beneficiary without disrupting vital government support.
Contact Us for Legal Help
If you have any questions about the new Special Needs Trust rules in California or need help managing an SNT,, contact the top-rated California probate attorneys Moravec, Varga & Mooney – today to schedule a telephonic consultation. Have questions, call (626) 460-1763 or email LV@MoravecsLaw.com.
Southern California Probate Lawyer Serving all counties in California, including Los Angeles, Riverside, San Bernardino, Sacramento, Santa Cruz & Beyond.
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