You may have heard that special needs trusts are required to reimburse the government for MediCal expenses incurred by the trust’s beneficiary when she passes away, and, in some cases, this is true. But not all special needs trusts are required to contain this type of “payback” provision, so if you are worried that the trust funds will go to pay back the government, you may not have anything to fear.

If a parent, grandparent, family friend or any other interested person wants to set up a special needs trust for a person with special needs, they will typically create a “third-party” special needs trust. The trust is called a “third-party” trust because it is funded with assets that do not belong to the person with special needs. These trusts are commonly used by family members to set aside inheritances for, or to simply provide additional assistance to, a family member with special needs. If properly created and funded, the assets in a “third-party” trust will not count as the beneficiary’s funds if or when she applies for benefits like Supplemental Security Income (SSI) or MediCal. Most importantly, a properly designed “third-party” special needs trust does not have to include a payback provision, meaning that the government has no right to the funds when the beneficiary dies.

On the other hand, if a person with special needs wants  to place her own funds into trust, she has two main options – transfer the funds into a trust established for her benefit by a parent, grandparent or court called a “first-party” special needs trust (because the assets come from the person with special needs herself) or transfer the funds into a pooled disability trust that is run by a non-profit organization. In almost every case, these types of trusts must contain payback provisions in order for the beneficiary to avoid a loss of government benefits due to excess assets.

In many cases, a family member looking to fund special needs trust for a person with special needs will utilize a “third-party” special needs trust that doesn’t contain payback provisions and that provides enormous benefits to the person with special needs. Even if the trust does contain a payback provision, in some cases where the beneficiary exhausts all of the trust’s assets, there may still not be a government payback at all.

* The information contained in this Blog is intended for general information and educational purposes only and does not constitute legal advice or an opinion of counsel.

The National Academy of Elder Law Attorneys (NAELA) has declared October 2011 “National Special Needs Law Month.”  NAELA will be sponsoring programs throughout the United States to educate older Americans and Americans with disabilities about their legal rights and to call attention to the legal resources available to them within their own communities. I will be speaking to the San Jose Caregiver’s Support Group of the Northern California Alzheimer’s Association on Monday, October 10, 2011 about Conservatorship issues and the planning that can be done to avoid Conservatorships.

I am a member of NAELA, which is a professional association of attorneys concerned with improving the availability and delivery of legal services to  older Americans and Americans with special needs.  There is a growing need for attorneys that specialize in Special Needs Law as families and caregivers become more aware of the legal rights of their loved ones. Special Needs Law attorneys assist families in financing long-term care, and providing them with the legal tools for financial management, such as powers of attorneys and trusts as well as understanding Medicare and Medi-Cal, special needs trusts and a student’s right to an independent educational plan, housing options, and other issues.

* The information contained in this Blog is intended for general information and educational purposes only and does not constitute legal advice or an opinion of counsel.