What Is a Third-Party Special Needs Trust in California? Complete Guide

📌 Quick Answer: A third party special needs trust (SNT) is an estate planning tool used to hold and manage assets for a person with disabilities, without affecting their eligibility for public benefits, like SSI or Medi-Cal. It is funded by someone other than the beneficiary, typically a parent, grandparent, or other family member.

Contact us for inquiries

If you have a loved one with a disability, protecting their financial future while preserving access to critical public benefits like Supplemental Security Income (SSI) and Medi-Cal is essential. A third party special needs trust (SNT) offers a powerful solution. In California, these trusts can be used to leave gifts or inheritances to a disabled person without jeopardizing government aid.

At Moravec, Varga & Mooney, we help families build thoughtful special needs plans that balance compassion with compliance.

🧠 What Makes a Trust “Third Party”?

A third party special needs trust is created and funded by someone other than the beneficiary. Common funding sources include:

• Parents or grandparents

• Family members

• Life insurance proceeds

• Estate planning distributions

Unlike a first party SNT, which holds the disabled person’s own assets (like a personal injury settlement), a third party SNT is not subject to Medi-Cal payback rules after the beneficiary dies.

🛡️ What Does a Third Party SNT Do?

This type of trust is designed to:

• Supplement the beneficiary’s needs not covered by public assistance

• Preserve eligibility for SSI, Medi-Cal, Section 8 housing, and other needs-based programs

• Allow a trustee to manage and disburse funds for the beneficiary’s benefit

The trust can pay for:

• Education and tutoring

• Medical care is not covered by insurance

• Transportation

• Travel and vacations

• Assistive technology

• Personal items, furniture, or services that improve the quality of life

📝 Key Requirements for Validity in California

For a third party SNT to be valid and effective:

• It must be irrevocable.

• It must clearly state that its purpose is to supplement—not replace—government benefits.

• The trustee must have full discretion to manage and distribute funds.

• The beneficiary cannot have control over the trust assets.

📌 Important: If structured improperly, trust assets may be counted against the beneficiary’s resource limits, resulting in loss of benefits.

💡 When Should You Set One Up?

Third party special needs trusts are ideal when:

• You're doing estate planning and want to provide for a disabled child or grandchild.

• You plan to leave life insurance or retirement benefits to a loved one with disabilities.

• You're receiving an inheritance and want to redirect it to a protected trust for a sibling or relative.

• You want to ensure future caregivers or trustees are legally authorized to manage the funds.

⚖️ Who Manages the Trust?

The person or institution you name as trustee will:

• Make spending decisions on behalf of the beneficiary.

• Keep records and accounts.

• Coordinate with benefit programs and stay compliant with government rules.

• Ensure the trust lasts for the lifetime of the beneficiary.

You may also appoint a successor trustee or trust protector to ensure long-term oversight.

✅ Benefits of a Third Party Special Needs Trust

• Preserves eligibility for needs-based public benefits

• No Medi-Cal reimbursement required after death

• Flexible spending on quality-of-life items

• Can be created during your lifetime or in your will

• Offers peace of mind that your loved one will be cared for responsibly

🏁 Final Thoughts

A third party special needs trust is one of the most powerful estate planning tools available for families with disabled loved ones. It protects public benefit eligibility while providing a financial safety net that lasts a lifetime.

At Moravec, Varga & Mooney, we help California families draft custom-tailored special needs trusts that comply with state and federal laws. If you're ready to secure your loved one’s future, we're here to help.